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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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FOR THE ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13474
FLORSHEIM GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3520923
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 NORTH LASALLE STREET, CHICAGO, ILLINOIS 60601-1014
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (312) 458-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
- ---------------------------------------- -------------------------
12 3/4% SENIOR NOTES DUE 2002 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 2000, was approximately $11,374,000 based on the
closing price of the registrant's common stock as reported on The NASDAQ Stock
Market on March 15, 2000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
8,483,651 shares as of March 15, 2000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 17, 2000, are incorporated by reference into
Part III of this report.
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PART I
ITEM 1. BUSINESS
This report contains forward-looking statements that address, among
other things, distribution efforts, sourcing arrangements, projected capital
expenditures, future cost of compliance with environmental laws and the adequacy
of financing arrangements to meet debt service, capital expenditures, and other
liquidity requirements. These statements may be found under Item 1. "Business"
and Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as in other portions of this report generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including without
limitation those discussed under the caption "Risk Factors" included in Item 1.
and other matters included in this report.
GENERAL
Florsheim Group Inc. (Florsheim or the Company) founded in 1892, markets,
designs and sources a diverse and extensive range of products in the middle to
upper price range of the men's quality footwear market. Florsheim became a
publicly held and publicly traded corporation on November 17, 1994 when
Furniture Brands International, Inc., formerly known as INTERCO INCORPORATED,
distributed the common stock of Florsheim to its stockholders. References herein
to Florsheim or the Company include the consolidated subsidiaries of Florsheim
unless the context indicates otherwise.
Florsheim markets products to more than 6,000 specialty and department
store locations worldwide and through 271 Company-operated specialty stores and
outlet stores as of January 1, 2000. The Company believes that the Florsheim
brand name is widely recognized both in the U.S. and in international markets
for quality and value and that consumers' unaided brand awareness of Florsheim's
products in the U.S. in the men's dress shoe category is over four times greater
than that of its nearest competitor (according to Footwear Market Insights
(FMI)).
Florsheim competes primarily in the $65 and above retail price point
segment of the men's non-athletic footwear market. The below $65 price point
segment is dominated by private label offerings. According to FMI, the Company
is the leading provider of men's dress shoes, with approximately an 11% share of
the men's total dress market, the nearest competitor having a 7% share.
Florsheim is also the leader in men's dress shoes over $65 with a 15% share,
versus 10% for the closest competitor.
The Company's worldwide wholesale distribution accounted for approximately
48% of fiscal 1999 sales. The Company has a global wholesale customer base which
includes department stores and national accounts, such as Sears, JC Penney, and
Nordstrom, independent dealers located worldwide and licensee locations in
Mexico, India, the Pacific Rim and the Middle East. In addition, as of January
1, 2000, Florsheim had a retail network of 157 Company-operated specialty stores
and 63 Company-operated outlet stores in the U.S. As of January 1, 2000, the
Company also operated 42 specialty retail stores and 9 outlet stores in
Australia, Canada, Italy, and New Zealand and licensed an additional 42
specialty shops to selected international partners. The Company's retail
operations allow the Company to: achieve broader distribution of its products;
provide a showcase for a variety of Florsheim branded products marketed by the
Company; test market acceptance of newly introduced products; further develop
consumer recognition of the Florsheim brand; and maintain direct contact with
changes in consumer preferences and buying practices. The Company continues to
develop store formats which provide updated, contemporary looks to its specialty
stores.
INDUSTRY OVERVIEW
The U.S. footwear industry has undergone substantial changes since the
early 1980s, which has resulted in significant challenges for U.S.-based
footwear manufacturers and retailers. Three major influences of this change have
been the increase in footwear imports into the U.S., the growth of consumer
demand for athletic and casual footwear, and a shift away from traditional shoe
stores. Management believes these influences have contributed to the following
trends: (i) the reduction in the domestic manufacturing base and an increase in
foreign sourcing of footwear products, (ii) the decline in annual sales (in
units) for the traditional dress shoe market, (iii) the increase in sales of
athletic and casual footwear and footwear products targeted for specific
athletic and leisure activities, and (iv) the shift in the primary channels of
distribution for footwear from independent dealers to department stores,
regional retailers and mass merchandisers. In response, the Company has
developed reliable, cost-effective foreign sourcing capabilities,
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developed new product lines, developed lines of dress casual and casual shoes,
and has expanded its wholesale distribution capabilities.
According to FMI, 1998 U.S. retail sales of men's footwear (excluding
athletic footwear and work boots) were approximately $6.35 billion. Within this
market, declines in the traditional dress shoe segment have been primarily
driven by the lifestyle trend toward more casual clothing and emphasis on
leisure time and the increased popularity of casual dress or "dress down" days
within the business community. The men's footwear industry merchandise mix has
mirrored these changes as consumer preferences have shifted from dress toward
casual. A dress casual category within the men's footwear segment, which
combines features of dress shoes with the comfort enhancing aspects of casual
footwear, has also developed in response to this lifestyle and fashion shift.
Over this period, consumers' perceptions of the distinctions between product
offerings within the dress, dress casual and casual categories have diminished
as a result of "crossover" products that are not limited to a particular use or
occasion but are suitable for a variety of styles, fashions and end uses.
Florsheim's marketing efforts are designed to respond to these market
developments and capture a larger percentage of the footwear market consisting
of younger and more casual-dress oriented consumers. Remodeled specialty store
locations also provide an updated, contemporary and more casual feel.
Department stores, regional retailers and mass merchandisers continue to
play a larger role in the retailing of footwear, and the significance of small
independent footwear dealers, which once dominated retail distribution, continue
to decline dramatically. To compensate for these shifts in the channels of
distribution, the Company has expanded its distribution to department stores and
regional and national retail stores and through Company operated stores. In
recent years, the Company has also developed a closer working relationship with
its key independent dealers in order to assist them with the expansion of their
Florsheim business.
MARKETING AND DISTRIBUTION GROWTH STRATEGY
Management of the Company emphasizes two principal growth objectives: to
strengthen the Company's position as the leading distributor of men's dress
shoes at retail prices of $65 and above and to improve its market share in the
growing dress casual and casual footwear categories. To further these
objectives, the Company has adopted growth strategies to: (i) strengthen its
leading position in the traditional dress shoe market, (ii) extend its dress and
dress casual product lines and enhance marketing initiatives to improve its
appeal to younger and casual-dress target audiences, (iii) broaden wholesale
distribution, (iv) offer additional products in its retail stores, using a
multi-brand approach, (v) expand international sales and (vi) increase sales
through new product introductions.
In order to execute the growth plans, the Company organized strategic
business units (SBU's) within the Company: wholesale, retail and international.
The SBU's focus specifically on achieving the growth objectives of the
individual units and provide the accountability necessary to allow management to
control the units in a manner consistent with the Company's overall goals.
Strengthen Leading Position in the Traditional Dress Shoe Market: FMI
estimates that the $65 and above dress shoe segment of the men's footwear
market, Florsheim's strongest historical product segment, accounted for $1.5
billion in annual retail sales in 1998. To expand market share in dress shoes,
the Company has positioned the Florsheim brand at retail price points above $80
and created a sub-label, FLS, to represent product under $80 at retail. This
strategy will allow Florsheim to market its products to broader channels of
distribution and appeal to a larger consumer base.
Extension of Dress Casual and Casual Product Offerings: The Company intends
to increase its market share in the growing dress casual and casual categories
through new product introductions, enhanced marketing initiatives that are
intended to appeal to younger and casual dress target audiences and the
promotion of product at Company-operated stores through a more contemporary
format. The Company originally developed Comfortech technology to improve the
comfort and durability features of its products without sacrificing style or
quality. Florsheim has continued to enhance the Comfortech design each year and
has added new products and features to encourage acceptance of Comfortech line
extensions, including Comfortech Maintenance Free, Comfortech SofTreds, and new
Comfortech MagneForce. The MagneForce technology, which met with considerable
success when introduced in Florsheim Golf in 1998, was expanded to the Company's
Comfortech and John Deere labels and introduced to the trade in August, 1999,
for the Spring 2000 consumer market. This technology features a flexible,
unipolar magnetic insole permanently lasted into the shoe. Magnets are believed
to increase circulation, reduce pain and increase the natural healing process.
Although magnetic therapy has been practiced for centuries in many parts of the
world, its
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acceptance has recently begun to permeate mainstream American consciousness.
Florsheim is the first major vendor to offer this technology, and the Company
believes these introductions will reinforce its position as both a maker of
casual and business casual footwear, and as an industry leader and innovator.
Broaden Wholesale Distribution: The Company is aggressively seeking to
expand its sales to wholesale accounts by adding new customers, such as national
and regional retailers, including expansion of department store distribution, as
well as increasing penetration of existing accounts with its extended product
line and aggressive merchandising and advertising programs. The Company's
success in distributing its branded merchandise through Sears and JC Penney
locations is being used as a model in marketing similar arrangements to other
department stores and national and regional retailers. An important component of
the Sears/Florsheim success is the use of an interactive video kiosk that allows
the consumer to electronically seek product information, learn about store
promotions, and special order footwear directly from the Florsheim distribution
center.
Multi-Brand Concept: In order to meet consumers' needs for a complete range
of men's footwear in its retail stores, the Company has added additional branded
products that do not conflict with the current Florsheim line. By selling
additional brands in its store, the Company expects, based on successful results
to date, that this strategy will introduce the Florsheim brand to additional
consumers by attracting new customers into the stores. The multi-brand concept
results in improved Florsheim product sales and higher overall sales per square
foot for the store.
Expanding International Distribution: The Florsheim name is recognized in
many international markets around the world, especially Australia, Canada and
Mexico. The Company has initiated efforts to establish a stronger presence in
Europe, Central and South America, and the Pacific Rim. In addition, the Company
has launched an international strategy, through licensing of stores, selective
openings of Company-operated specialty stores, and increased sales to wholesale
accounts, to increase its penetration of established markets and to introduce
the Florsheim brand in selected new markets.
New Products: In 1996 and 1997, the Company launched three new product
lines through its wholesale business unit. The new products include: Florsheim
Golf Shoes, John Deere Footwear, and Joseph Abboud Footwear.
ADVERTISING
The Company's advertising objective is to build upon the strength of the
Florsheim brand name and expand its market share and sales in the growing dress
casual and casual categories with particular attention on targeting a younger,
more affluent customer. According to FMI, unaided brand awareness of the
Florsheim name is approximately 50% in the United States in the men's dress shoe
category. Management believes this unaided brand awareness is over four times
greater than that of Florsheim's nearest competitor in the dress category of the
footwear industry and is third overall, behind Nike and Reebok, in the entire
footwear industry. Management believes the consumer's image of Florsheim is
typically associated with a high quality product that offers good value.
Management has implemented advertising and marketing programs to successfully
carry that well-established quality image through to offerings in the dress
casual and casual categories.
The total domestic advertising expenditures were approximately 3.0% of
Florsheim's total domestic sales in fiscal 1999 and 1998 and 2.0% in fiscal
1997. These expenditures were divided among television, national print ads and
print advertising placed on behalf of the Company-operated specialty stores and
independent dealers.
WHOLESALE OPERATIONS
The Company distributes its product at wholesale to more than 6,000 retail
locations worldwide ranging from independent shoe stores to large national
retailers and department stores to Company-operated specialty and outlet stores.
The Company is continually developing new programs to add distribution,
strengthen its position with its existing customers and capitalize on
opportunities in response to the shifts in consumer shopping patterns. The
Company's broadened product line has helped strengthen its position with dealers
because each dealer can select the items from the product line which will appeal
to its particular customer base.
Due to the changing profile of the retail shoe industry with the reduced
importance of the traditional shoe store, Florsheim has expanded its
distribution strategy to include a broader range of retailers. While remaining
selective in its choice of dealers and focusing on those that will best serve
the Company for the long-term, the Company believes that
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a broader distribution base that includes department stores, national and
regional retailers and mass merchandisers is essential for continued success.
RETAIL OPERATIONS
As of January 1, 2000, Florsheim had 271 Company-operated stores worldwide,
represented by 199 Florsheim specialty shoe shops and 72 outlet stores.
According to industry data, management believes that Florsheim's
Company-operated chain of stores is the largest U.S. specialty retailer of men's
quality dress footwear. The Company evaluates each of these locations as leases
expire and makes the decision to renew, relocate, or close. The Company intends
to continue the selective opening of new stores and closing unprofitable stores.
The Company-operated stores provide a strategic distribution channel which
gives the Company a key competitive advantage. Management believes that as the
footwear retailing industry continues to consolidate, it is critical that the
Company maintains its own controlled distribution channel. Company-operated
stores are the largest distributor of Company products and, in the U.S.,
represented approximately 30% of the wholesale sales value of total domestic
wholesale shipments during fiscal 1999. The Company realizes both a wholesale
gross profit margin and a retail gross profit margin on product distributed
through its Company-operated stores. The combined gross profit margin on such
sales is larger than the gross profit margin earned on product distributed
exclusively through wholesale channels. Florsheim maintains a consistent pricing
policy for the wholesale division such that prices for shoes purchased by
Company-operated retail stores are typically the same as those paid by
independent dealers.
During 1996, a number of Company-operated specialty stores began to offer a
limited selection of non-Florsheim products in order to attract new consumers
into the stores. Management believes that this strategy will continue to improve
overall sales per square foot and will enable the Company to introduce the
Florsheim brand to a new group of younger consumers. Company-operated stores
will continue to carry predominantly Florsheim product which will help reinforce
the Company's quality footwear image by displaying the complete Florsheim
product line in an attractive, Company-controlled display format. The Company
has opened three new @ease retail locations which it believes appeal to a
younger consumer with a casual product mix offering of Florsheim and
non-Florsheim brands.
The traditional Florsheim specialty shoe stores carry a full selection of
the Company's brands, while the outlet stores carry discontinued merchandise,
close out inventory and specially manufactured products. Generally, the Company
does not concurrently offer any identical products through these separate and
distinct distribution channels. Both the traditional specialty shoe stores and
the outlet stores have been, and will continue to be, key elements of the
Company's distribution efforts.
INTERNATIONAL
Florsheim has been a participant in international markets since the 1960s
and has a strong, established presence in Australia and Canada through
Company-operated businesses, and in Mexico through a licensee operation. The
Company is establishing a stronger presence in selected regions of Europe,
Central and South America, India, the Middle East, and the Pacific Rim. The
international division markets the Company's products through a global network
of wholesale dealers, distributors, licensees and Company-operated stores. At
January 1, 2000, the Company operated 51 specialty and outlet stores in
international markets and licensed an additional 43 specialty shops to selected
partners. International sales, including exports, were $45.9 million in fiscal
1999, and were distributed as shown below:
INTERNATIONAL DISTRIBUTION
PERCENTAGE OF TOTAL FISCAL 1999 INTERNATIONAL SALES
Australia 49%
Canada 24
Pacific Rim 10
Europe 7
Other Exports 10
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100%
Management believes American brand names, in general, have well recognized
marketing appeal in many countries throughout the world and believes that the
Company's classic, high quality products are well received in the European,
Central and South American and Pacific Rim markets. The Company believes that
the Florsheim brand
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name is recognized throughout the world and that the trend toward the growth of
international brand names offers tremendous opportunity for Florsheim.
Australia and Canada are important and well established markets for
Florsheim. The Australian and Canadian operations both include wholesale
distribution and a chain of Company-operated specialty and outlet stores. As of
January 1, 2000, the Company operated 38 stores in Australia and New Zealand and
12 stores in Canada. Management believes that its Australian stores are the only
chain of dedicated quality men's dress shoes in Australia and provide a key
competitive advantage in this market. Both the Australian and Canadian retailing
industries are dominated by large department stores; therefore, the Company is
concentrating on building wholesale sales to these key department store accounts
while maintaining its commitment to a profitable network of Company-operated
stores and independent dealers. Currently, there is one Company-operated
manufacturing facility in Australia and none in Canada.
Management believes that the Pacific Rim offers opportunities for Florsheim
and has targeted this region as part of the Company's international growth
strategy. Distribution to this market is primarily effected by its Hong Kong
sales subsidiary through wholesale sales to independent retailers in the Pacific
Rim and licensees and distributors in Hong Kong, Indonesia, Taiwan, Singapore,
Japan, China and the Philippines. The Company's primary strategy for increasing
its presence in this area is to increase the number of independent dealers and
licensees while establishing Company-operated specialty stores in a few select
locations.
Management believes there is a significant opportunity to increase sales in
Europe by capitalizing on the appeal of American brand name products. While it
is expected that the Company will encounter greater competition in Europe than
in the Pacific Rim, the Company intends to draw upon its long-standing
relationships with Italian and Spanish suppliers to establish a presence and
generate demand for its products in Europe. The Company has developed a sales
presence in several European countries through a Company-operated store in
Milan, Italy and through an arrangement for corner stores within Printemps, a
large department store chain in France, El Corte Ingles in Spain and other large
department stores in Europe.
The International Division also includes licensees and distributors in
India, Mexico, Japan, Qatar, the Philippines, Saudi Arabia, Venezuela, Guatemala
and the United Arab Emirates.
Note 15 to the Company's consolidated financial statements included under
item 8 of this Report contains certain geographical segment information
regarding the Company's domestic and international operations.
PRODUCT
Management's primary product strategy is to strengthen its leading position
in the dress category while further penetrating the growing dress casual and
casual categories. Florsheim offers a diverse line of men's quality dress,
dress-casual and casual shoes in the $65 and above price range. All products,
except those that are sold under license, are currently sold under the Florsheim
brand, but are identified with the following sub-labels to differentiate product
by lifestyle or construction. In addition, the Company has entered into
licensing agreements to manufacture and sell John Deere work boots and Joseph
Abboud footwear.
The following is a summary of the Florsheim brands by category:
<TABLE>
<CAPTION>
DRESS DRESS CASUAL CASUAL OTHER
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<S> <C> <C> <C>
Florsheim Florsheim Florsheim MagneForce
Florsheim Comfortech Florsheim Comfortech Florsheim Comfortech John Deere**
Florsheim Imperial FLS @ease Florsheim Golf
FLS Joseph Abboud* MagneForce
Joseph Abboud*
</TABLE>
* This is the registered trademark of Joseph Abboud
** This is the registered trademark of Deere and Company
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FLORSHEIM: The Florsheim label represents the company's heritage of
quality, value and appropriate style in dress and casual footwear that can be
worn with confidence. Retail price points for this line range from $80 to $120.
FLORSHEIM COMFORTECH: Incorporating the most advanced comfort technology
and construction methods, the Florsheim Comfortech line offers uncompromising
comfort in versatile business casual and casual styles. Retail price points
range from $90 to $120.
FLORSHEIM IMPERIAL: Florsheim Imperial, recognized worldwide for superior
quality and impeccable fashion, includes dress and dress casual styles for the
discriminating gentleman. Retail price points range from $120 to $170.
FLS: This label was developed to differentiate the company's value line of
footwear from the moderate to high-end product associated with the Florsheim
brand. FLS by Florsheim represents a quality product at a value price in
traditional dress and dress casual styles, with retail prices from $50 to $80.
JOSEPH ABBOUD FOOTWEAR: A complete line of high-end fashion footwear
designed and manufactured to the specifications of men's fashion designer Joseph
Abboud. Joseph Abboud fashions are available only at selected specialty and
department stores which serve upscale clientele. Retail price points range from
$150 to $300.
JOHN DEERE: A comprehensive line of work boots designed and manufactured to
meet the specific, functional needs of industrial, agricultural and other
blue-collar workers. The line is marketed under the John Deere label through a
licensing agreement with Deere, one of the world's best known
industrial/agricultural equipment manufacturers. The boots are designed to be
the most comfortable and durable product in the market. Retail price points
range from $80 to $175.
FLORSHEIM GOLF: Designed to be technologically superior, Florsheim Golf
combines the best of Florsheim Comfortech with quality materials and
workmanship. MagneForce technology introduced in 1999 marked this line as an
innovative force in golf, with the first shoes featuring a full length,
permanently lasted, magnetic insole. Retail priced at $120.
@EASE: Contemporary dress casual and casual styles designed for the younger
consumer in the wardrobe-building phase of his life. Marketed primarily in
company-owned Florsheim and @ease stores. Retail prices range from $60 to $80.
Florsheim has entered into non-footwear licensing agreements which include
hosiery, shoe care products, belts and small leather goods. These products are
sold under the Florsheim name through the wholesale distributor network and at
Florsheim company operated stores.
SOURCING AND MANUFACTURING TRADE REGULATIONS
Florsheim's sourcing strategy is to manufacture products where they can be
produced most efficiently while still meeting management's quality and service
specifications. Toward this goal, Florsheim shoes are manufactured both
domestically and overseas. Florsheim has consolidated its domestic manufacturing
in recent years to improve production capabilities. In December 1999, the
Company closed its last manufacturing facility. The facility was located in Cape
Girardeau, Missouri and represented approximately 20% of the company's worldwide
production. During 1999, approximately 80% of Florsheim's finished shoe sourcing
requirements were fulfilled outside of the United States. Approximately 58% of
Florsheim's non-domestic products are manufactured in India, where Florsheim is
the minority partner (26% ownership) in a joint venture arrangement with a local
operator. Under this arrangement, the venture manufactures exclusively for
Florsheim and without minimum quantity restrictions for the production output.
Also under this arrangement, the Company is actively involved in training and
production techniques, and management believes that production quality is
comparable to what could otherwise be produced using domestic production
facilities. The remainder of the Company's products are sourced from a variety
of suppliers in a number of other countries, including Spain, Italy, Dominican
Republic, China, and Mexico. The Company will continue to source certain
products in the U.S.
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Florsheim's major raw materials include leather uppers, linings and
outsoles. Florsheim obtains raw materials and components from a wide variety of
sources located throughout the world and has alternate sources for leathers,
components and other materials. Leather pricing and availability are subject to
fluctuating supply and demand cycles; however, Florsheim management believes it
has adequate sourcing arrangements through its own suppliers as well as through
its overseas manufacturers to ensure an uninterrupted supply of raw materials.
The Company's operations are subject to the customary risks of doing
business abroad, including currency fluctuations, labor unrest, political
instability, restrictions on transfer of funds, export duties and quotas and
U.S. customs and tariffs. The Omnibus Trade and Competitiveness Act of 1988
added a new provision to the Trade Act of 1974 dealing with intellectual
property rights. This provision, which is commonly referred to as "Special 301,"
directed the United States Trade Representative (USTR) to designate those
countries with poor records for protecting intellectual property rights as
"priority foreign countries" and to initiate investigations with respect to the
allegedly unfair practices in such countries. Where such an investigation does
not lead to a satisfactory resolution of such practices, through consultations
or otherwise, USTR is authorized to take retaliatory action, including the
imposition of restrictions on imports from the particular country into the
United States.
In the past, the USTR has reviewed the trade practices of various
countries, including India, Taiwan and China under Special 301, but such reviews
have not had any material affect on the Company's sourcing arrangements. No
assurance can be given, however, that the USTR's efforts will not, in the
future, have an adverse effect on the Company's sourcing arrangements.
The Company's imported finished footwear products are subject to U.S.
customs duties of 8.5%. The Company's imported leather uppers may be imported
from India duty-free under the Generalized System of Preferences. The Company's
imports of leather are subject to a range of duty rates from 0-5.0%. The Company
is unable to predict whether additional U.S. customs duties, quotas or other
restrictions may be imposed upon the importation of its products in the future
or whether duty-free privileges may be suspended or terminated in the future.
INFORMATION TECHNOLOGY UPGRADE AND YEAR 2000
In 1998, the Company established a task force to assess the impact of the
Year 2000 issue on the hardware and software utilized in the Company's internal
operations. The task force was also responsible for the evaluation of exposures
from third parties, including customers and suppliers. Upon completion of the
assessment, the Company initiated a significant information technology upgrade
in order to resolve the Year 2000 issue. The cost of the upgrade was
approximately $15.4 million, which was capitalized during the three years ended
January 1, 2000.
The Company successfully completed the installation of new financial
systems during 1998 and completed wholesale and warehouse systems and retail
systems in 1999. While the Company did transition into Year 2000 without any
significant problems, the Company did experience problems which negatively
impacted operations at times during 1999 as a result of the new system.
SEASONALITY OF BUSINESS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Seasonality of Business."
BACKLOG
At January 1, 2000, the Company's U.S. wholesale operations had a backlog
of customer orders amounting to approximately $14.9 million, compared to
approximately $13.8 million, at January 2, 1999, an increase of 7.4%. The
majority of incoming orders are for "at once" shipments; therefore, the backlog
is not necessarily indicative of a corresponding change in annual sales.
EMPLOYEES
As of January 1, 2000, Florsheim had 1,889 employees in the United States
and overseas. Approximately 18% of Florsheim's work force is represented by
unions. Management believes Florsheim has maintained satisfactory overall
relations with its unionized and non-unionized workforce.
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INTELLECTUAL PROPERTY
The major trademarks and trade names under which Florsheim's men's footwear
are sold include: Florsheim, Florsheim Comfortech, Florsheim Imperial, Florsheim
Comfortech Maintenance Free, MagneForce, FLS and @ease. Other footwear is sold
through licensing agreements as: Joseph Abboud footwear and John Deere boots.
The Company considers Florsheim and the names and marks traditionally used with
it to be material to its business. The Company also owns several patents which
relate to footwear construction and are material to the operations of the
business and expire over the next 13 years.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws,
regulations and ordinances relating to the operation and removal of underground
storage tanks and the storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes
pursuant to which the Company has in the past been required to incur compliance
and clean-up costs. The nature of the Company's operations expose it to the risk
of claims with respect to environmental matters, and there can be no assurance
that material costs or liabilities will not be incurred in connection with such
claims.
Based on the Company's experience to date, the Company believes that its
future cost of compliance with environmental laws, regulations and ordinances,
or exposure to liability for environmental claims, will not have a material
adverse effect on the Company's business or financial position. However, future
events, such as changes in existing laws and regulations, or unknown
contamination of sites owned or operated by the Company (including contamination
caused by prior owners and operators of such sites) may give rise to additional
compliance costs which could have a material adverse effect on the Company's
financial position.
RISK FACTORS
Impact of General Economic Conditions on Footwear Industry and the
Company's Operations
Florsheim and the footwear industry in general are dependent on the
economic environments, both domestic and international, and levels of consumer
spending which affect not only the ultimate consumer, but also retailers,
Florsheim's primary direct customers. As a result, Florsheim's results may be
adversely affected by downward trends in the economy or the occurrence of events
that adversely affect the economy in general. There can be no assurance that any
prolonged economic downturn would not have a material adverse effect on
Florsheim.
Competition
Florsheim directly competes, with respect to fashion, quality and price,
with a number of domestic manufacturers and retailers of men's dress, dress
casual and casual footwear. In addition, Florsheim indirectly competes with
manufacturers and retailers of athletic footwear. Florsheim's retail stores also
compete with a variety of retailers, including regional specialty retailers,
department stores, national retailers and mass merchandisers, with respect to
men's dress, dress casual and casual footwear. The additions of John Deere work
boots, Joseph Abboud footwear and Florsheim Golf shoes increase the number and
types of marketers with which Florsheim competes. Florsheim also experiences
significant competition from imports. Highly competitive conditions existing
within both the wholesale and retail segments of the men's footwear market may
result in increased price promotions and promotional expenses that limit the
Company's ability to grow its sales and enhance its gross profit margins.
Reliance on Foreign Production
During 1999, approximately 80% of Florsheim's finished shoe sourcing
requirements were fulfilled outside of the United States. Approximately 58% of
total products are manufactured in India, where Florsheim is a participant in a
joint venture arrangement with a local operator. The remainder of such
non-domestic product sourced from a variety of suppliers in a number of other
countries, including Portugal, Spain, Italy, Dominican Republic, China and
Mexico. The Company's operations are subject to the customary risks of doing
business abroad, including currency fluctuations, labor unrest, political
instability, restrictions on transfer of funds, import and export duties and
trade barriers (including quotas) and U.S. customs and tariffs. In addition,
trade regulations and potential U.S. government sanctions could be imposed
against some of the countries from which the Company sources product and result
in restrictions on imports from such countries. To date, these factors have not
had an adverse impact on the Company's operations.
9
<PAGE> 10
Control of Florsheim
Apollo Investment Fund, L.P. ("Apollo") and its affiliate Lion Advisors,
L.P., on behalf of an investment account under management ("Lion"; Apollo and
Lion together being referred to herein as the "Apollo Stockholders"), together
beneficially own approximately 66.2% of the outstanding shares of Florsheim
common stock. By reason of their ownership of shares of Florsheim common stock,
the Apollo Stockholders effectively have the power to control or influence
control of the Company, including in elections of the Board of Directors and
other matters submitted to a vote of the Company's stockholders, including
extraordinary corporate transactions such as mergers. The Apollo Stockholders
may exercise such control from time to time. A majority of the Board of
Directors consists of individuals associated with affiliates of Apollo and Lion.
Shares Eligible for Future Sale
The Apollo Stockholders beneficially own approximately 5,615,160 shares of
Florsheim Common Stock. However, the Apollo Stockholders continually review
decisions to buy, sell or hold investments and based on market conditions or
other considerations, their intentions may change. Sales of shares of Florsheim
Common Stock by the Apollo Stockholders would be subject to restrictions imposed
by the Securities Act of 1933, as amended (the "Securities Act"), including Rule
144 promulgated thereunder, unless the Apollo Stockholders exercise certain
rights for the registration of their shares of Florsheim Common Stock under the
Securities Act. The sale of a substantial number of shares of Florsheim Common
Stock by the Apollo Stockholders could adversely affect the market price of the
Florsheim Common Stock.
ITEM 2. PROPERTIES
Florsheim owns or leases the following principal plants, offices and
warehouses:
Floor Owned
Space or
Location Type of Facility (Sq. Ft.) Leased
-------- ---------------- --------- ------
Chicago, IL............. Headquarters 80,000 Leased
Jefferson City, MO...... Warehouse 562,000 Owned
Preston, Australia...... Plant/Warehouse 59,000 Leased
Hong Kong............... Office/Warehouse 12,000 Leased
Florence, Italy......... Office/Warehouse 5,000 Leased
The Company also operates 270 retail stores in leased facilities. The
stores generally range in size from 800 to 3,000 square feet.
The Jefferson City facility is encumbered by a first priority lien and
mortgage pursuant to the Company's bank credit facility.
The Company's properties listed above are generally well maintained,
suitable for present operations and adequate for current requirements. Florsheim
estimates that its facilities were effectively utilized during fiscal 1999 at
moderate levels of productive capacity and believes that its facilities in
combination with other facilities available through the Company's sourcing
network have the capacity, if necessary, to expand production to meet
anticipated product requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the opinion
of management, the ultimate liability, if any, of the Company from all such
proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of the Company and its subsidiaries.
10
<PAGE> 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of March 15, 2000, there were approximately 1,500 holders of record of
common stock.
Shares of the Company's common stock trade on The NASDAQ Stock Market under
the symbol FLSC. The reported high and low sale prices for Florsheim's common
stock on The NASDAQ Stock Market for each quarterly period within the two most
recent fiscal years are included in Note 16 to the consolidated financial
statements of the Company included under Item 8 of this report.
The Company did not pay dividends on its common stock during the fiscal
years ended January 3, 1998, January 2, 1999, and January 1, 2000.
A discussion of restrictions on the Company's ability to pay cash dividends
is included in Note 6 to the consolidated financial statements of the Company
included under Item 8 of this Report.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
The following financial data should be read with the consolidated financial
statements and notes thereto included in Item 8 of this report.
<TABLE>
<CAPTION>
Fiscal year ended (1)
--------------------------------------------------------------------
December 30, December 28, January 3, January 2, January 1,
1995 1996 1998 1999 2000
---------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Net sales (2) $ 285,307 $ 244,855 $ 253,056 $ 244,895 $ 245,726
Earnings (loss) from operations 6,920 11,408 12,221 7,069 (484)
Earnings (loss) before extraordinary
item (3) (4,846) 1,964 3,607 (559) (7,618)
Net earnings (loss) (4) (4,846) 1,964 (1,435) (559) (8,368)
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary
item $ (0.58) $ 0.24 $ 0.43 $ (0.07) $ (0.90)
Net earnings (loss) (0.58) 0.24 (0.17) (0.07) (0.99)
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary
item (0.58) 0.23 0.42 (0.07) (0.90)
Net earnings (loss) (0.58) 0.23 (0.17) (0.07) (0.99)
OTHER INFORMATION:
Dividends paid per share $ -- $ -- $ -- $ -- $ --
Cash flow provided by (used in):
Operating activities 31,010 13,221 (17,783) (5,092) (5,030)
Investing activities (5,320) 13,991 (3,633) (9,172) (7,993)
Financing activities (25,313) (10,770) 6,920 14,000 11,767
Depreciation and amortization 4,539 4,875 5,425 4,937 6,245
Capital expenditures 5,479 9,424 9,922 10,308 8,462
BALANCE SHEET DATA AT PERIOD END:
Working capital $ 111,922 $ 95,116 $ 94,167 $ 83,452 $ 69,275
Property, plant, and equipment, net 21,742 24,974 27,245 30,981 32,525
Total assets 186,321 185,238 183,646 199,566 197,352
Long-term debt, less current maturities 80,126 69,450 76,912 76,912 83,412
Shareholders' equity 55,068 57,655 54,482 53,347 44,648
NUMBER OF RETAIL STORES AT PERIOD END:
U.S. Specialty 220 205 200 173 157
U.S. Outlet 90 93 99 84 63
International 53 53 54 54 51
--------- --------- --------- --------- ---------
Total Stores 363 351 353 311 271
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 13
Notes to Selected Financial Information:
(1) Florsheim's fiscal year end is the Saturday closest to December 31. The
results of operations will periodically include a 53 week fiscal period.
Fiscal 1995, 1996, 1998 and 1999 each represented a 52 week period. Fiscal
1997 represented a 53 week period.
(2) Includes sales of the Company's Hy-Test Inc. safety shoe business, which
was sold in March 1996. Net sales of Hy-Test were $38,659, and $6,943 in
fiscal 1995, and 1996, respectively.
(3) Fiscal 1997 includes a $4,300 million gain associated with the sale of the
Company's former corporate headquarters.
(4) Fiscal 1997 includes an extraordinary loss of $5,042 associated with the
tender premium and expenses related to the repurchase of Senior Notes and
the execution of a revolving credit facility. 1999 includes an
extraordinary loss of $750 associated with the refinancing of the credit
facility.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following commentary should be read in conjunction with the consolidated
financial statements and notes thereto included under Item 8 of this report. All
dollar amounts are presented in thousands.
RESULTS OF OPERATIONS
The Company's fiscal year end is the Saturday closest to December 31. Throughout
this analysis fiscal 1997 refers to the 53 week period ended January 3, 1998,
fiscal 1998 refers to the 52 week period ended January 2, 1999, and fiscal 1999
refers to the 52 week period ended January 1, 2000.
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for fiscal 1999 were $245,726, an increase of $831 as compared to
fiscal 1998. The increase resulted from significant gains in U.S. Wholesale net
sales, which were more than offset by reductions in U.S. Retail net sales. U.S.
Wholesale net sales increased $8,555, or 9.7%, with all channels of distribution
reporting higher sales. The gains were led by significant increases at both
Sears, J C Penney and big box retailers. U.S. Retail net sales decreased $9,214
or 8.2%, as a result of planned store closings and lower inventory levels due to
computer system issues, which resulted in improper inventory replenishment.
International net sales increased $1,490 or 3.3% on strengthening in the
Company's Australian operations and the Pacific Rim.
Gross profit for fiscal 1999 was $106,176, a decrease of $3,400 as compared to
fiscal 1998. Fiscal 1999 included charges of $2,646 for costs associated with
the December 1999 closing of the Company's Cape Girardeau, Missouri
manufacturing facility, costs associated with the planned sale of the Golf
division and a $3,169 inventory adjustment recorded in the fourth quarter. The
adjustment was based on a physical inventory completed upon the conclusion of
the year and was related to the new computer system. Fiscal 1998 included a
charge of $2,132 for the closing of unprofitable retail stores. Excluding the
effect of theses charges in both years, gross profit as a percent of net sales
was 45.6% in fiscal 1999 and 1998.
Selling, general and administrative expenses, excluding non-recurring selling,
general and administrative expenses, were $104,284 in fiscal 1999 compared to
$101,378 in fiscal 1998. In fiscal 1999 these costs were 42.4% of net sales, an
increase from 41.4% of net sales for fiscal 1998. The increase was due to higher
bad debt expense, increased depreciation expense related to the new computer
systems and increased costs resulting from the implementation of the new
computer systems. The Company recorded impairment charges in selling, general
and administrative expense related to long-lived assets of certain retail stores
of $256 in fiscal 1998. See Note 2 to the Notes to Consolidated Financial
Statements. Non-recurring selling general and administrative expenses were
$2,376 in fiscal 1999 compared to $1,129 in fiscal 1998. Fiscal 1999 included
costs associated with the downsizing of both the Company's corporate
headquarters and its New York showroom space, costs associated with the
disposition of
13
<PAGE> 14
the Golf division, costs associated with the resignation of the Company's former
Chairman and costs related to the Company's evaluation of strategic
alternatives. Fiscal 1998 included charges for the effects of retail store
closings.
Loss from operations for fiscal 1999 was $484 compared to earnings of $7,069 in
fiscal 1998. Excluding the effects of the non-recurring costs in both years,
earnings from operations were $4,538 in fiscal 1999, compared to $10,330 in
fiscal 1998, a decrease of $5,792. The decrease is the result of lower gross
profit and increased selling, general and administrative expenses as discussed
above. Interest expense for fiscal 1999 was $10,423 as compared to $8,699 in
fiscal 1998. The increase is due to primarily to higher daily average
outstanding borrowings in fiscal 1999 compared to fiscal 1998. Other expense was
$105 in fiscal 1999 compared to other income of $677 in fiscal 1998. Fiscal 1998
included a gain of $775 related to the sale of a foreign trademark.
Income tax benefit was $3,394 in fiscal 1999 compared to $394 in fiscal 1998.
The effective tax rate for fiscal 1999 and fiscal 1998 was 31.3% and 41.3%
respectively. The change in the effective rate reflects the effect of the
recording of a $1,306 valuation allowance for foreign tax assets in fiscal 1999.
In fiscal 1999, the company recorded an extraordinary charge of $750 (net of tax
benefits of $418) related to the write-off of deferred financing fees associated
with the company's former credit facility.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 were $244,895, a decrease of $8,161, or 3.2%, as
compared to fiscal 1997. The decrease in net sales was primarily the result of
the net effect of store closures in 1998, the fact that fiscal 1998 included 52
weeks compared to 53 weeks in fiscal 1997, and the effect of currency
devaluations in Australia and Southeast Asia. U.S. Wholesale net sales increased
$5,727, or 6.9%, due to gains from new products, the rollout and reorders of J C
Penney and expansion in department and big box stores. U.S. Retail net sales
decreased $7,667 or 6.4%, as a result of store closings and the 52 week year in
fiscal 1998 included one less week compared to 53 weeks in fiscal 1997.
International net sales decreased $6,221 or 12.3%, due to currency devaluations.
Gross profit for fiscal 1998 was $109,576, a decrease of $11,281 as compared to
fiscal 1997. Fiscal 1998 included charges of $2,132 for costs associated with
the closing of unprofitable retail stores. Excluding the effect of the store
closings, gross profit as a percent of net sales was 45.6% in fiscal 1998,
compared to 47.8% in fiscal 1997. The reduction resulted from the shift in mix
to more wholesale sales, the effects of the lower sales volume and currency
devaluations.
Selling, general, and administrative expenses, excluding the costs associated
with store closings, were $101,378 for fiscal 1998, a decrease of $7,258, or
6.7%, from fiscal 1997. Selling, general, and administrative expenses for fiscal
1998 were 41.4% of net sales, a decrease from 42.9% of net sales for fiscal
1997. The decrease was due to the effects of store closings and cost reduction
programs. The Company recorded impairment charges in selling, general and
administrative expense related to the carrying value of the long lived assets of
certain retail stores of $256 and $400 in fiscal 1998 and fiscal 1997,
respectively. See Note 2 to the Notes to Consolidated Financial Statements.
Earnings from operations for fiscal 1998 were $7,069 compared to $12,221 in
fiscal 1997. Excluding the effects of the costs associated with store closings,
earnings from operations were $10,330 in fiscal 1998, compared to $12,221 in
fiscal 1997, a decrease of $1,891. Interest expense for fiscal 1998 was $8,699
as compared to the fiscal 1997 amount of $9,130. This decrease is due to the
lower average cost of outstanding debt as a result of the repurchase of the
Senior Notes in May 1997, compared to the cost of borrowings under the Company's
bank credit facility. Other income was $677 in fiscal 1998 compared to $3,742 in
fiscal 1997. Significant items in other income included a gain of $775 related
to the sale of a foreign trademark in fiscal 1998 and the sale of the Company's
former headquarters building in fiscal 1997 which resulted in a gain of $4,300.
An extraordinary loss associated with the tender premium and expenses related to
the purchase of the Senior Notes was $5,042, net of tax benefits of $2,813, in
fiscal 1997.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital at January 1, 2000 was $69,275 compared to $83,452 at January 2,
1999, a decrease of $14,177. The decrease in working capital resulted from a
decrease in inventory and accounts receivable and an increase in current
borrowings under the bank credit facility, partially offset by a decrease in
accounts payable.
CAPITAL EXPENDITURES
During fiscal 1999, 1998 and 1997, capital expenditures totaled $8,462, 10,308,
and $9,922, respectively. During fiscal 1999 and fiscal 1998, approximately 80%
and 72%, respectively, was capitalized for management information systems.
During fiscal 1997, approximately 62% of the expenditures were used to open or
remodel retail stores and outlets.
FINANCING ARRANGEMENTS
In May 1997, the Company completed its cash tender offer and consent
solicitation relating to its Senior Notes. Approximately $51,000 aggregate
principal amount of Senior Notes were tendered, representing approximately 73%
of the $69,450 aggregate principal amount of outstanding Senior Notes.
Approximately $18,400 of Senior Notes remain outstanding. Concurrently with the
tender offer, the Company also executed a $110,000, five-year secured revolving
credit facility that replaced its previous $75,000 credit facility. Borrowings
under the credit facility were used to finance the tender offer for the Senior
Notes. In August 1999, the Company refinanced its existing revolving credit
facility with a new $110,000 credit facility. Borrowings under the credit
facility were $88,767 at January 1, 2000, of which $23,767 was classified as
short-term and $65,000 was classified as long-term.
Further credit facility borrowings will be made from time to time to finance
future liquidity requirements, including month-to-month working capital
requirements. The credit facility provides for borrowings of up to $110,000,
subject to borrowing base availability ($102,490 at January 1, 2000). The cash
borrowings under the credit facility bear interest at the prime rate plus 1.75
%, or at an adjusted LIBOR rate plus a factor, currently 2.75 %, depending on
the type of loan the Company executes and various covenant ratios.
INFORMATION TECHNOLOGY UPGRADE AND YEAR 2000
In 1998, the Company established a task force to assess the impact of the Year
2000 issue on the hardware and software utilized in the Company's internal
operations. The task force was also responsible for the evaluation of exposures
from third parties, including customers and suppliers. Upon completion of the
assessment, the Company initiated a significant information technology upgrade
in order to resolve the Year 2000 issue. The cost of the upgrade was
approximately $15,400, which was capitalized during the three years ended
January 1, 2000.
The Company successfully completed the installation of new financial systems
during 1998 and completed wholesale and warehouse systems, as well as retail,
systems in 1999. While the Company did transition into Year 2000 without any
significant problems, the Company did experience problems which negatively
impacted operations at times during 1999 as a result of the new systems.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133") requires companies to
recognize all derivative instruments as assets or liabilities in the balance
sheet and to measure those instruments at fair value. SFAS No. 133 initially
required adoption by January 1, 2000. However, Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Financial Instruments and Hedging
Activities-Deferral of Effective Date of SFAS No. 133," issued in June 1999,
delayed the required implementation date of SFAS No. 133 to no later than
January 1, 2001. The Company anticipates that the new standards will not have a
significant impact on the results of operations and financial condition of the
Company.
SEASONALITY OF BUSINESS
In total, the Company's net sales are generally not seasonal however, earnings
from operations tend to be higher in the fourth quarter due to the
proportionately higher retail sales which include both a wholesale and a retail
margin.
15
<PAGE> 16
FOREIGN CURRENCY
The Company's export sales are denominated in United States dollars, and its
international sales other than export sales are denominated in the local
currency of each jurisdiction in which Florsheim's international operations are
located. The effects of foreign currency movements relative to the dollar in
both the Pacific Rim and Australia negatively impacted operating results in
fiscal 1998, however, the Company did partially recover from the currency
movements in 1999. The majority of purchases by the Company from foreign sources
are denominated in United States dollars.
EURO CONVERSION
In January 1999, eleven of the member countries of the European Monetary Union
converted from their sovereign currencies to a common currency, the Euro. At
that time, fixed conversion rates between the legacy currencies and the Euro
were set. The legacy currencies will remain legal tender from January 1, 1999,
through July 1, 2002. Beginning July 1, 2002, Euro denominated currency will be
issued. No later than July 1, 2002, the participating countries will withdraw
bills and coins so that the legacy currencies will no longer be considered legal
tender. The Company does not expect the conversion to have a material impact on
its operating results or financial condition.
INFLATION
The Company does not believe that inflation has had a material impact on sales
or operating results during the periods covered in this discussion.
FORWARD LOOKING STATEMENTS
When used in this discussion, the words "believes" and "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, over which the Company has no
control, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligations to republish revised forward-looking statements to reflect events or
circumstances after the date thereof or to reflect the occurrence of
unanticipated events. Readers are also urged to carefully review and consider
the various disclosures made by the Company in this report, as well as the
Company's periodic reports with the Securities Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to certain market risks, including foreign currency and
interest rates. The Company uses a variety of practices to manage these market
risks. The Company is exposed to potential gains or losses from currency
fluctuations affecting net investments and earnings denominated in foreign
currencies. The Company's primary exposures are to changes in exchange rates for
the U.S. dollar versus the Canadian dollar and the Australian dollar.
The Company's various currency exposures often offset each other, providing a
hedge against currency risk. The Company has not historically entered into
forward contracts to hedge currency risks.
Interest rate risk is managed through a combination of fixed rate and variable
rate debt with varying maturities. All material components of debt are
denominated in U.S. dollars. At January 1, 2000, variable rate long-term debt
was $88.8 million.
The Company is exposed to credit risk on certain assets, primarily accounts
receivable. The Company provides credit to customers in the ordinary course of
business and performs ongoing credit evaluations. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company currently believes
its allowance for doubtful accounts is sufficient to cover customer credit
risks.
ITEM 8. FINANCIAL DATA AND SUPPLEMENTARY DATA
The following pages contain the Financial Statements and Supplementary Data as
specified by Item 8 of Part II of Form 10-K.
16
<PAGE> 17
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS: PAGE
<S> <C>
Consolidated Balance Sheets at January 2, 1999 and January 1, 2000.......................................18
Consolidated Statements of Operations and Comprehensive Earnings for the Fiscal
Years Ended January 3, 1998, January 2, 1999 and January 1, 2000.......................................19
Consolidated Statements of Cash Flows for the Fiscal Years Ended January 3, 1998,
January 2, 1999 and January 1, 2000....................................................................20
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended January 3,
1998, January 2, 1999, and January 1, 2000...........................................................21
Notes to Consolidated Financial Statements. .............................................................22
Independent Auditors' Report.............................................................................46
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts............................................................45
</TABLE>
17
<PAGE> 18
<TABLE>
FLORSHEIM GROUP INC.
CONSOLIDATED BALANCE SHEETS JANUARY 2, 1999 AND JANUARY 1, 2000 (DOLLARS IN
THOUSANDS, EXCEPT PER SHARE DATA)
============================================================================================================
<CAPTION>
ASSETS January 2, January 1,
Current assets: 1999 2000
--------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 6,931 $ 5,675
Receivables, less allowances of $1,207 at January 2, 1999
and $1,475 at January 1, 2000 33,370 30,163
Inventories 79,855 70,964
Deferred income taxes 4,719 5,539
Prepaid expenses and other current assets 5,451 5,543
------------- -----------
Total current assets 130,326 117,884
Property, plant and equipment:
Buildings and improvements 23,363 22,357
Machinery and equipment 31,848 38,066
------------- -----------
55,211 60,423
Less: accumulated depreciation (24,230) (27,898)
------------- -----------
Net property, plant and equipment 30,981 32,525
Deferred income taxes 12,852 16,623
Other assets 25,407 30,320
------------- -----------
Total assets $ 199,566 $ 197,352
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank credit facility, current $ 18,500 $ 23,767
Accounts payable 16,183 11,175
Accrued employee compensation 3,958 3,706
Accrued interest expense 981 1,104
Other accrued expenses 7,120 8,795
Income taxes payable 132 62
------------- -----------
Total current liabilities 46,874 48,609
------------- -----------
Bank credit facility, long-term 58,500 65,000
Long-term debt 18,412 18,412
Accrued postretirement benefits other than pension 19,122 17,741
Other long-term liabilities 3,311 2,942
------------- -----------
Total liabilities 146,219 152,704
------------- -----------
Shareholders' equity:
Common Stock, 20,000,000 shares authorized, without par value,
$1.00 stated value, 8,453,651 shares issued and outstanding at
January 1, 1999 and 8,483,651 shares issued and outstanding at
January 1, 2000 8,454 8,484
Paid-in capital 50,580 50,644
Accumulated other comprehensive income -
Cumulative translation adjustment (2,335) (2,760)
Accumulated deficit (3,352) (11,720)
------------- -----------
Total shareholders' equity 53,347 44,648
------------- -----------
Total liabilities and shareholders' equity $ 199,566 $ 197,352
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 19
<TABLE>
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
===============================================================================================================
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
January 3, January 2, January 1,
1998 1999 2000
------------- ----------- ------------
<S> <C> <C> <C>
Net sales $ 253,056 $ 244,895 $ 245,726
Cost of sales 132,199 133,187 136,904
Non-recurring costs of sales - 2,132 2,646
----------- ----------- -----------
Gross profit 120,857 109,576 106.176
Selling general, and administrative expenses 108,636 101,378 104,284
Non-recurring selling, general and administrative
expenses - 1,129 2,376
----------- ----------- -----------
Earnings (loss) from operations 12,221 7,069 (484)
Interest expense, net 9,130 8,699 10,423
Other income (expense) 3,742 677 (105)
----------- ----------- -----------
Earnings (loss) before income taxes and extraordinary item 6,833 (953) (11,012)
Income tax expense (benefit) 3,226 (394) (3,394)
----------- ----------- -----------
Earnings (loss) before extraordinary item 3,607 (559) (7,618)
Extraordinary item (less income tax benefit of $2,813
in fiscal 1997 and $418 in fiscal 1999) (5,042) - (750)
----------- ----------- -----------
Net loss (1,435) (559) (8,368)
Other comprehensive loss -
foreign currency translation adjustment (1,993) (714) (425)
----------- ----------- -----------
Comprehensive loss $ (3,428) $ (1,273) $ (8,793)
=========== =========== ===========
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.43 $ (0.07) $ (0.90)
Extraordinary item (0.60) - (0.09)
----------- ----------- -----------
Net loss $ (0.17) $ (0.07) $ (0.99)
=========== =========== ===========
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.42 $ (0.07) $ (0.90)
Extraordinary item (0.59) - (0.09)
----------- ----------- -----------
Net loss $ (0.17) $ (0.07) $ (0.99)
=========== =========== ===========
Weighted average number of shares outstanding:
Basic 8,361 8,454 8,456
Diluted 8,567 8,454 8,456
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 20
<TABLE>
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS)
================================================================================================================
<CAPTION>
Fiscal Year Ended
------------------------------------------------------
January 3, January 2, January 1,
1998 1999 2000
------------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (1,435) $ (559) $ (8,368)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain on disposal of assets (4,682) (102) (1,219)
Depreciation and amortization 5,425 4,937 6,245
Deferred income taxes (490) (1,054) (4,591)
Extraordinary loss 5,042 - 750
Noncash interest and other expenses 547 431 653
Decrease (increase) in receivables (163) (6,776) 3,207
Decrease (increase) in inventories (7,165) 1,134 8,891
Increase in prepaid expenses and other assets (4,481) (6,158) (2,226)
Increase (decrease) in accounts payable, accrued
interest and other accrued expenses (11,962) 5,079 (3,466)
Increase (decrease) in income taxes payable 265 (611) (70)
Increase (decrease) in other long-term liabilities 1,316 (1,413) (1,750)
------------- ------------- -------------
Net cash used in operating activities (17,783) (5,092) (1,944)
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of Corporate headquarters building 6,277 - -
Proceeds from disposal of assets 12 1,136 469
Capital expenditures, net (9,922) (10,308) (8,462)
------------- ------------- -------------
Net cash used in investing activities (3,633) (9,172) (7,993)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from initial borrowing under bank credit facility 58,500 - 84,000
Deferred financing fees on bank credit facility - - (3,086)
Retirement of former credit facility - - (84,000)
Borrowings under former bank credit facility 33,700 33,700 8,000
Repayments on former bank credit facility (29,200) (19,700) (1,000)
Borrowings under new bank credit facility - - 86,066
Repayments under new bank credit facility - - (84,491)
Repurchase of 12-3/4% Senior Notes, including tender
premium and refinancing costs, net of tax (56,080) - -
------------- ------------- ------------
Net cash provided by financing activities 6,920 14,000 8,681
------------- ------------- ------------
Net decrease in cash and cash equivalents (14,496) (264) (1,256)
Cash and cash equivalents at beginning of period 21,691 7,195 6,931
------------- ------------- ------------
Cash and cash equivalents at end of period $ 7,195 $ 6,931 $ 5,675
============= ============= =============
Supplemental disclosure:
Cash payments for income taxes, net $ 1,000 $ 1,272 $ 386
Cash payments for interest 10,366 8,362 9,647
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
<TABLE>
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS)
=================================================================================================================
<CAPTION>
Common Stock Accumulated
---------------------------------- Other
Number of Paid in Comprehensive Accumulated Shareholders'
Shares Amount Capital Income (loss) Deficit Equity
----------- -------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1996 8,346 $ 8,346 $ 50,295 $ 372 $ (1,358) $57,655
Net loss -- -- -- -- (1,435) (1435)
Foreign currency translation -- -- -- (1,993) -- (1,993)
Exercise of stock options 67 67 188 -- -- 255
-------- -------- -------- -------- --------- --------
Balance at January 3, 1998 8,413 8,413 50,483 (1,621) (2,793) 54,482
Net loss -- -- -- -- (559) (559)
Foreign currency translation -- -- -- (714) -- (714)
Exercise of stock option 41 41 97 -- -- 138
-------- -------- -------- -------- --------- --------
Balance at January 2, 1999 8,454 8,454 50,580 (2,335) (3,352) 53,347
Net loss -- -- -- -- (8,368) (8,368)
Foreign currency translation -- -- -- (425) -- (425)
Exercise of stock options 30 30 64 -- -- 94
-------- -------- -------- -------- --------- --------
Balance at January 1, 2000 8,484 $ 8,484 $ 50,644 $ (2,760) $ (11,720) $ 44,648
======== ======== ======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000 (IN
THOUSANDS, EXCEPT SHARE DATA)
================================================================================
(1) BASIS OF PRESENTATION
Nature of Business
Florsheim Group Inc. and its subsidiaries (Florsheim or the Company)
design, market, source and distribute a diverse and extensive range of
products in the middle to upper price range of the men's quality footwear
market.
The Distribution
In November 1994, Florsheim became an independent public company. Furniture
Brands International, Inc., formerly known as INTERCO INCORPORATED
(INTERCO), its former parent company and sole stockholder, distributed all
of the Company's common stock to existing INTERCO shareholders. In
connection with the distribution, Florsheim issued $85,000 in 12-3/4%
Senior Notes due 2002 (INTERCO) and entered into a bank credit facility.
Florsheim used the proceeds from the Senior Notes and $25,000 from the bank
facility to pay financing expenses and repay its share of the outstanding
joint and several indebtedness issued in connection with the 1992 plan of
reorganization of INTERCO and its principal subsidiaries.
Reorganization and Emergence from Chapter 11
On January 24, 1991, INTERCO and its domestic subsidiaries filed petitions
for reorganization under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Eastern District of Missouri.
INTERCO emerged from Chapter 11 effective with the beginning of business on
August 3, 1992.
Sale of Assets of Corporate Headquarters Building
On March 20, 1997, the Company completed the sale of the corporate
headquarters building located in Chicago, Illinois, for an all cash sale
price of approximately $8,050. Net cash proceeds were approximately $6,000
before income taxes. The net gain on sale of $4,300 is included in other
income.
Tender Offer for Senior Notes-Extraordinary Item
On May 9, 1997, the Company completed a cash tender offer and consent
solicitation relating to the Senior Notes. Approximately $51 million
aggregate principal amount of Senior Notes were tendered, representing
approximately 73% of the $69.45 million aggregate principal amount of
outstanding Senior Notes. The Company also executed a new $110 million,
five-year secured revolving credit facility (bank credit facility) that
replaced the $75 million credit facility described above. An extraordinary
loss of approximately $5.0 million, net of tax, is associated with the
tender premium and expenses related to the repurchase of the Senior Notes
and the execution of the new revolving credit facility.
Reclassifications
Certain amounts in the Company's historical financial statements have been
reclassified to be consistent with the presentation in the current period.
(2) SIGNIFICANT ACCOUNTING POLICIES
Florsheim follows generally accepted accounting principles to present
fairly its consolidated financial position, results of operations, cash
flows and shareholders' equity. The major accounting policies of Florsheim
are set as follows:
22
<PAGE> 23
FLORSHEIM GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL
YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
Principles of Consolidation
The financial statements include the accounts of the Company and its
subsidiaries on a consolidated basis. All significant intercompany
transactions and balances have been eliminated.
Fresh Start Reporting
As of August 2, 1992, in accordance with the AICPA Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" (SOP 90-7), INTERCO and its domestic subsidiaries were
required to adopt "fresh start" reporting. The ongoing impact of the
adoption of "fresh start" reporting is reflected in Florsheim's financial
statements.
Fiscal Year
Florsheim's fiscal year end is the Saturday closest to December 31.
Therefore, the results of operations will periodically include a 53 week
period. Fiscal 1998 and 1999 each represented a 52 week period. Fiscal 1997
represented a 53 week period. For purposes of these financial statements,
fiscal 1997 refers to the period ended January 3, 1998, fiscal 1998 refers
to the period ended January 2, 1999 and fiscal 1999 refers to the period
ending January 1, 2000.
Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term, liquid investments
with an original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net
realizable value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost when acquired.
Expenditures for improvements are capitalized while normal repairs and
maintenance are expensed as incurred. For financial reporting purposes,
Florsheim utilizes both accelerated and straight-line methods of computing
depreciation and amortization. Such expense is computed based on the
estimated useful lives of the respective assets, which generally range from
34 to 50 years for buildings, 10 years for machinery and equipment, 2 to 18
years for furniture and fixtures, and 3 to 5 years for computer equipment
and software. Leasehold improvements are amortized over the shorter of the
estimated useful life of the assets or the lease term, and generally range
from 2 to 18 years.
Revenue Recognition
The Company recognizes revenue as products are shipped to wholesale
customers and at the point of sale for retail customers.
Advertising
Advertising costs are expensed as incurred. These expenses were $6,412,
$7,027 and $7,376 in fiscal 1997, 1998, and 1999, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred taxes assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
23
<PAGE> 24
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
Stock Option Plans
The Company accounts for its stock options plans in accordance with
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), which allows entities to continue
to apply the provisions of APB opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and thereafter as if the fair-valued based
method defined in SFAS No. 123 had been applied.
Foreign Currency Translation
The accounts of the foreign subsidiaries have been translated from their
functional currency to the U.S. dollar. Such translation adjustments are
not included in income, but are accumulated directly in a separate
component of stockholders' equity.
Earnings Per Share
The Company presents basic and diluted earnings per share. Basic earnings
per share is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the equity. Basic and diluted earnings
per share do not include securities in instances where they would be
antidilutive.
The following table provides a reconciliation of the weighted average
shares outstanding used in calculating basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
January 3, January 2, January 1,
1998 1999 2000
------------- ------------- ----------
<S> <C> <C> <C>
Weighted average shares
outstanding - basic $ 8,361 $ 8,454 $ 8,456
Assumed exercise of stock options 206 - -
------------ ------------- ----------
Weighted average shares
outstanding - diluted $ 8,567 $ 8,454 $ 8,456
============= ============= ==========
</TABLE>
There are no adjustments to earnings before extraordinary item,
extraordinary item, or net earnings.
24
<PAGE> 25
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
Deferred Financing Costs
Certain expenses related to obtaining financing have been capitalized and
are being amortized over the life of the financing to which they relate.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company
considers stores with operating losses in a consecutive two year period as
potentially impaired. A review is conducted on a store by store basis,
grouped by year of lease expiration, comparing future undiscounted net cash
flows to the carrying value of fixtures and leasehold improvements to test
for impairment. Impairment, when present, is calculated as the difference
between the asset carrying value and the future discounted net cash flows
(fair value).
Pursuant to its review of the retail store operations, the Company recorded
impairment charges related to the long lived assets of certain retail
stores in selling, general and administrative expenses of $400 in fiscal
1997 and $256 in fiscal 1998. There was no impairment charge in 1999.
Non-cash Transactions
During fiscal 1997 and 1998, the Company entered into non-cash transactions
with a third party whereby Florsheim would exchange excess inventory for
advertising and media credits. At January 1, 2000 and January 2, 1999,
barter credits of $2,492 and $2,624, respectively, are recorded in prepaid
expenses and other current assets at a cost that is consistent with the
value of the inventory surrendered.
Accounting for the Costs of Computer Software Developed/Obtained for
Internal Use
During 1998, the company adopted the provisions of Statement of Position
98-1 which provides guidance on the capitalization of certain internal
costs as they relate to implementing software being developed or
implemented for internal use. In fiscal 1999 and 1998, Florsheim
capitalized approximately $1,100 and $1,000, respectively, of internal
costs associated with its SAP software implementation.
(3) NON-RECURRING COSTS
In the fourth quarter of fiscal 1998, the Company recognized restructuring
charges of $3,261 related to the closing of 46 retail locations in fiscal
1998, and the closing of 30 locations in fiscal 1999. These charges were
taken in connection with the Company's plan to close non-contributing
locations and to liquidate the inventory in place.
The following table summarizes the costs reflected in the 1998 Consolidated
Statement of Operations and Comprehensive Earnings. $2,132 is reflected as
non-recurring cost of sales which is principally related to the liquidation
of inventory and $1,129 as non-recurring selling, general, and
administrative expenses, which consisted of fixed asset write downs and
incremental operating expenses. A summary of the charges is as follows:
25
<PAGE> 26
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
Stores Stores to be
Closed in Closed in
1998 1999 Total
--------- --------- ---------
Fixed asset write downs $ 140 $ 99 $ 239
Store incremental operating expenses 205 685 890
Provision for inventory write down
to net realizable value 94 2,038 2,132
--------- --------- ---------
Total effect of restructuring charges $ 439 $ 2,822 $ 3,261
========= ========= =========
The fixed asset write-downs were for store fixturing and leasehold
improvements, which were disposed of or abandoned upon exiting the
locations. Store closing expenses were primarily incremental administrative
and store salaries and other costs incurred in connection with the
wind-down of store operations. The inventory write-down was for the
adjustment of the carrying value of store merchandise to the expected net
realizable value during the sale. The reserves established during fiscal
1998 were fully utilized during fiscal 1999.
In fiscal 1999, the Company recognized special charges of $5,022. In the
second quarter, the Company recorded $1,100 related to the resignation of
its former Chairman and costs related to the Company's review of strategic
alternatives. These costs include legal and professional fees and salary
continuation costs including related benefits. These costs are included in
non-recurring selling, general and administrative expense. In the third
quarter, the Company announced the closing of its Cape Girardeau, Missouri
manufacturing facility, and recorded a $2,000 charge related to the
closing. The $2,000 charge, which was included in non-recurring cost of
sales included charges for the write-down of certain inventory and
property, plant and equipment to net realizable value. In addition, the
charge included severance and related payroll taxes for 186 employees at
the facility plus certain other personnel who supported the operation, as
well as additional pension costs and a post-retirement benefits gain. In
the fourth quarter, the Company recorded a special charge of $1,922 for the
sale of the Golf division and costs associated with the downsizing of the
Corporate headquarters and New York showroom space, severance and other
costs. The charge included $646 of non-recurring cost of sales related to
the write-down of certain Golf inventory and $1,276 of non-recurring
selling, general and administrative costs. The $1,276 includes the
write-down of certain Golf related receivables to net realizable value,
severance and related benefits for Golf and other corporate personnel, and
lease termination and other related costs for the Company's corporate
headquarters and its New York showroom space. The accruals for the
non-recurring costs are expected to be fully utilized during fiscal 2000.
The following table summarizes the costs reflected in the 1999 Consolidated
Statement of Operations and Comprehensive Earnings and the resulting
Consolidated Balance Sheets for the year ended January 1, 2000.
26
<PAGE> 27
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Amounts charged Reserve Balance
Provision to accrual at January 1, 2000
--------- ---------- ------------------
<S> <C> <C> <C>
RESIGNATION/STRATEGIC STUDY
Legal and professional fees $ 432 $ (178) $ 254
Employee related expenses 668 (303) 365
-------- -------- --------
1,100 (481) 619
-------- -------- --------
CAPE GIRARDEAU CLOSING
Inventory write-offs 690 (80) 610
Plant and equipment costs 606 (169) 437
Employee related expenses 704 (138) 566
-------- -------- --------
2,000 (387) 1,613
-------- -------- --------
FACILITY DOWNSIZING/GOLF SALE
Inventory write-offs 646 (346) 300
Receivables allowance 365 -- 365
Facilities charges 716 (440) 276
Employee related expenses 195 -- 195
-------- -------- --------
1,922 (786) 1,136
-------- -------- --------
Total $ 5,022 $ (1,654) $ 3,368
======== ======== ========
(4) INVENTORIES
Inventories are as follows:
January 2, January 1,
1999 2000
-------- --------
Retail merchandise $ 39,375 $ 34,329
Finished products 32,621 32,682
Work-in process 1,172 82
Raw materials 6,687 3,871
-------- --------
$ 79,855 $ 70,964
======== ========
</TABLE>
(5) DEBT
12-3/4% Senior Notes due 2002
The Senior Notes are senior unsecured obligations of Florsheim. The Senior
Notes are jointly and severally guaranteed on a senior unsecured basis by
all existing domestic subsidiaries of Florsheim and may be guaranteed by
future domestic subsidiaries.
Interest on the Senior Notes is payable semiannually on March 1 and
September 1. The Senior Notes mature on September 1, 2002. On or after
September 1, 1998, the Senior Notes are redeemable, at Florsheim's option,
in whole or in part, at various prices plus accrued and unpaid interest, if
any, to the redemption date. In the event of a change of control, Florsheim
is required to offer to repurchase all of the Senior Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the purchase date.
See Note 1 for a description of the fiscal 1997 tender offer.
27
<PAGE> 28
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
Bank Credit Facility
In August 1999, the Company refinanced its existing revolving credit
facility with a three year, $110,000 Credit Facility (the "Credit
Facility") with a new bank. Borrowings under the Credit Facility are
subject to borrowing base availability ($102,490 at January 1, 2000).
Borrowings outstanding under the credit facility were $88,767 at January 1,
2000, $65,000 of which are classified as long-term. The Credit Facility
includes $10,000 of Tranche B Availability ("Tranche B"), which amortizes
$2,000 per month (subject to certain limitations) commencing in August 2000
through December 2000. Tranche B amortization does not reduce the total
$110,000 availability. The Tranche B interest rate is 11.5%. Interest on
the remaining outstanding borrowings (9.4% at January 1, 2000) are based on
alternative floating rate structures, at the Company's option, and various
covenant ratios.
The Credit Facility is secured by substantially all domestic accounts
receivable, inventory and property, plant and equipment as well as the
capital stock of certain foreign subsidiaries. The Credit Facility requires
a minimum EBITDA (earnings before interest expense, income taxes,
depreciation and amortization and other non-cash items) to interest
expense, commencing with the quarter ended January 1, 2000. The Credit
Facility provides various other restrictions including limitations on the
incurrence of additional indebtedness and the payment of dividends. The
Company was in compliance with the covenants at January 1, 2000.
The Credit Facility includes an unused line fee of 0.375% per annum.
Letters of credit are permitted by the Credit Facility but reduce the
amount of availability. Letters of credit of $7,183 were outstanding at
January 1, 2000.
In connection with the refinancing, the Company recorded an extraordinary
charge of $750 (net of tax benefits of $418) related to the write-off of
deferred financing fees associated with the old credit facility.
Other Debt
The Company's Australian subsidiary utilizes a credit facility for working
capital borrowings and issuance of letters of credit. This facility is
subject to annual review and secured by a debenture mortgage over the
company's inventory to a limit of approximately $1,400. There were no
borrowings or letters of credit outstanding under this facility at January
2, 1999 and January 1, 2000.
Subsequent to January 1, 2000, the Company's Australian subsidiary entered
into a new five year $6,100 credit facility with an Australian bank. The
facility provides for a $3,800 term loan, a $1,000 overdraft facility, a
$700 letter of credit facility and certain other facilities. The term loan
facility bears interest based on alternative floating rate structures at
the Company's option. The initial borrowing under the term loan on January
31, 2000 was $3,152 which was used to pay a dividend to the Company.
(6) CAPITAL STOCK
Preferred Stock
The Company's restated certificate of incorporation includes authorization
to issue up to two million shares of no par value, preferred stock. No
preferred stock has been issued.
Common Stock
The Company's restated certificate of incorporation includes authorization
to issue up to 20 million shares of common stock. As of January 2, 1999,
8,453,561 shares of common stock had been issued and were outstanding. As
of January 1, 2000, 8,483,561 shares of common stock had been issued and
were outstanding.
28
<PAGE> 29
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000 (IN
THOUSANDS, EXCEPT SHARE DATA)
================================================================================
The holders of the common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders.
Subject to preferential rights that may be applicable to any preferred
stock (none of which had been issued as of January 1, 2000), holders of
common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available
therefore. However, it is not presently anticipated that dividends will
be paid on common stock in the foreseeable future. At January 1, 2000 the
Company was prohibited from paying dividends under the terms of its bank
credit facility.
(7) STOCK OPTION PLANS
The Florsheim Shoe Company 1994 Stock Option Plan
In 1994, prior to the Distribution, the Company adopted The Florsheim Shoe
Company 1994 Stock Option Plan (the "Option Plan") pursuant to which the
Executive Compensation and Stock Option Committee (the "Compensation
Committee") of the Board may grant stock options to officers and key
employees. The Option Plan was amended and approved by the stockholders
during the Company's annual 1996 Stockholder Meeting. The Option Plan
authorizes grants of options to purchase up to 800,000 shares of common
stock.
Stock options may be granted with an exercise price below the stock's fair
market value at the grant date. All outstanding stock options have ten year
terms and vest and become fully exercisable after five to six years from
the date of grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation cost
has been recognized for the Option Plan as options issued to date were at
prices equal to or in excess of the stock's fair market value at the date
of grant. Had compensation cost for the company's Option Plan been
determined based on the fair value at the grant date for awards in 1997,
1998 and 1999 consistent with the provisions of SFAS No. 123, the resulting
reduction in the company's net income and earnings per share for the years
ended January 3, 1998, January 2, 1999 and January 1, 2000 would not have
been significant.
At January 1, 2000, options to purchase 440,850 shares of common stock were
outstanding and 179,350 options were exercisable. Options to purchase
79,000 shares were granted in 1999. The per share weighted-average fair
value of stock options granted during 1999 was $2.38 on the date of grant
using the Black Scholes option pricing model with the following
weighted-average assumptions: dividend yield rate of 0.0%, risk free
interest rate of 5.03% , stock volatility rate of 50.0%, expected turnover
rate of 3.35% and an expected life of five years.
At January 2 1999, options to purchase 415,000 shares of common stock were
outstanding and 170,250 options were exercisable. Options to purchase 5,000
shares were granted in 1998 and were cancelled prior to January 2, 1999. At
January 3, 1998, options to purchase 555,750 shares of common stock were
outstanding and 54,900 options were exercisable. The per share
weighted-average fair value of stock options granted during fiscal 1997,
was $4.80 on the date of grant using the Black Scholes option pricing model
with the following weighted-average assumptions: dividend yield rate of
0.0%, risk free interest rate of 5.5%, stock volatility rate of 65.0%,
expected turnover rate of 50.0% and an expected life of five years.
The Charles J. Campbell Stock Option Plan
In 1995, the Company adopted the second stock option plan, the Charles J.
Campbell Stock Option Plan (the "Campbell Plan"). The Campbell Plan was
adopted as a means to encourage and provide opportunities for ownership of
Florsheim common stock by the former Chairman of the Board, Charles J.
Campbell. The
29
<PAGE> 30
GROUP INC. FLORSHEIM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000 (IN
THOUSANDS, EXCEPT SHARE DATA)
================================================================================
Campbell Plan was also approved by the public stockholders during the
Company's annual 1996 Stockholder Meeting.
The Campbell Plan authorized grants of options to purchase up to a total of
250,000 shares of common stock. The Campbell Plan consisted of three
separate grants of non-qualified stock options as follows: (i) options to
purchase 83,333 shares of common stock with an option price per share of
$5.00; (ii) options to purchase 83,333 shares of common stock with an
option price per share of $7.50; (iii) option to purchase 83,334 shares of
common stock with an option price per share of $10.00. All stock options
had ten year terms, vest, and 20% became fully exercisable on the first
five anniversaries of the date of grant. Options to purchase 250,000 shares
were granted in 1995. No compensation cost was recognized for the Campbell
Plan as options issued to date were at prices equal to or in excess of the
stock's fair market value at the date of grant.
At January 1, 2000, all outstanding and exercisable options under the
Campbell Plan were forfeited or canceled pursuant to the resignation of Mr.
Campbell in June 1999. At January 2, 1999, options to purchase 250,000
shares of common stock were outstanding and 149,998 options were
exercisable. At January 3, 1998, options to purchase 250,000 shares of
common stock were outstanding and 100,000 shares were exercisable. No
options were granted during fiscal 1997, 1998, or 1999, under the Campbell
Plan.
The Florsheim Group Inc. Consultants Stock Option Plan
In 1997, the Company adopted its third stock option plan, The Florsheim
Group Inc. Consultants Stock Option Plan (the "Consultants Plan") which is
intended to encourage and provide opportunities for ownership of Florsheim
common stock by those certain outside consultants and advisors (including
endorsers of Company products) of the Company. To date, only selected
endorsers of the Company products have been granted options. The
Consultants Plan authorizes grants of options to purchase an aggregate of
100,000 shares of common stock.
At January 1, 2000, options to purchase 7,000 shares of common stock were
outstanding, and 4,000 shares were exercisable. No options were granted in
1999 under the Consultants Plan. At January 2, 1999, options to purchase
10,000 shares of common stock were outstanding, and 2,000 were exercisable.
No options were granted in 1998 under the Consultants Plan. At January 3,
1998, options to purchase 30,000 shares of common stock were outstanding,
and none were exercisable. The per share weighted-average fair value of
stock options granted during 1997, 30,000 shares, was $4.84 on the date of
grant using the Black Scholes option pricing model with the following
weighted-average assumptions: dividend yield rate of 0.0%, risk free
interest rate of 5.5%, stock volatility rate of 65.0%, expected turnover
rate of 50.0% and an expected life of five years.
30
<PAGE> 31
GROUP INC. FLORSHEIM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
Stock option activity is as follows:
Number of Weighted-Average
Shares Exercise Price
---------- --------------
Balance at December 28, 1996 721,000 $ 5.49
Granted 245,000 7.93
Exercised (73,650) 3.92
Forfeited (56,600) 4.84
---------- ---------
Balance at January 3, 1998 835,750 6.38
Granted 5,000 9.25
Exercised (40,750) 3.31
Forfeited (125,000) 6.60
---------- ---------
Balance at January 2, 1999 675,000 6.54
Granted 79,000 4.84
Exercised (30,000) 3.19
Forfeited (283,150) 7.45
---------- ---------
Balance January 1, 2000 440,850 $ 5.91
========== =========
31
<PAGE> 32
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
The following tables summarize information about fixed price stock options
outstanding and exercisable at January 1, 2000:
<TABLE>
<CAPTION>
Range Number Average Weighted Number Weighted
of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Life Exercise at Exercise
Prices January 1, 2000 (in Years) Price January 1, 2000 Price
- --------------- --------------- ---------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.98 - $ 4.46 45,000 2.7 $ 3.23 45,000 $ 3.23
$ 4.46 - 5.95 253,000 6.8 4.98 95,100 5.19
$ 5.95 - 7.44 43,000 7.9 6.19 7,500 6.13
$ 7.44 - 8.93 82,850 6.5 8.24 26,650 8.23
$13.99 - 14.88 17,000 7.6 14.88 5,100 14.88
------- -------
440,850 179,350
======= =======
</TABLE>
(8) INCOME TAXES
Income tax expense (benefit) was comprised of the following:
Fiscal Year Ended
---------------------------------------------------
January 3, January 2, January 1,
1998 1999 2000
------------- ----------- --------
Current:
Federal $ (40) $ - $ -
State and local 23 47 39
Foreign 920 613 709
------------- ----------- -----------
903 660 748
Deferred (490) (1,054) (4,560)
------------- ----------- -----------
$ 413 $ (394) $ (3,812)
============= =========== ===========
32
<PAGE> 33
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000 (IN
THOUSANDS, EXCEPT SHARE DATA)
================================================================================
The following table reconciles the difference between the Federal corporate
statutory rate and Florsheim's effective tax rate:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------
January 3, January 2, January 1,
1998 1999 2000
-------------- ------------ --------
<S> <C> <C> <C>
Federal corporate statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of
Federal tax benefit (1.5) (5.0) (0.3)
Foreign taxes, including foreign
currency translation effects 21.5 10.5 5.5
Adjustments for foreign tax credits
and foreign dividend income 40.5 13.9 11.1
Nontaxable foreign income (136.0) (15.0) (8.8)
Change in valuation allowance - - (10.8)
Other 0.1 1.9 (0.4)
----------- ------------ ---------
Effective income tax rate (40.4)% 41.3% 31.3%
=========== ============ ==========
</TABLE>
The sources of the tax effects for temporary differences that give rise to
the deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
---------------- ---------
<S> <C> <C>
Deferred tax assets:
Fair value adjustment $ 3,059 $ 2,773
Employee postretirement benefits 7,025 6,542
Expense accruals 1,850 3,448
Rent abatement 625 501
Intangibles 480 521
Valuation allowances 653 793
Plant and equipment 1,777 1,334
Inventory costs capitalized 632 640
Net operating loss carryforwards 3,923 9,994
Foreign tax credits 4,647 6,002
Barter credits 272 272
Restructuring accruals 988 3
------------- -----------
Total gross deferred tax assets 25,931 32,823
Valuation allowance - (1,306)
------------- -----------
Total deferred tax assets 25,931 31,517
------------- -----------
Deferred tax liabilities:
Employee benefit plans (8,406) (9,434)
Other 46 48
------------- -----------
Total deferred tax liabilities (8,360) (9,386)
------------- -----------
Net deferred tax assets $ 17,571 $ 22,131
============= ===========
</TABLE>
<PAGE> 34
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. The $1,306
valuation allowance above represents unrealizable Foreign tax credits
expiring in fiscal 2000. Management believes sufficient taxable income will
be generated from future operations to realize the remaining benefits of
the deferred tax assets. At January 1, 2000, the Company had net operating
loss carryforwards for federal income tax purposes which expire through
2019, and foreign tax credit carryforwards which expire through 2004.
(9) EMPLOYEE BENEFIT PLANS
Florsheim maintains non-contributory defined benefit pension plans covering
the majority of its employees and retirees. Annual cost for
company-sponsored defined benefit plans is determined using the projected
unit credit actuarial method. Prior service cost is amortized on a
straight-line basis over the average remaining service period of employees
expected to receive benefits. It is Florsheim's practice to fund pension
costs to the extent that such costs are tax deductible and in accordance
with ERISA. The assets of the various plans include corporate equities,
government securities, corporate debt securities and insurance contracts.
In addition to pension and other supplemental benefits, certain retired
employees are currently provided with specified health care and life
insurance benefits. Eligibility requirements for such benefits generally
state that benefits are available to employees who retire after a certain
age with specified years of service if they agree to contribute a portion
of the cost. Florsheim has reserved the right to modify or terminate these
benefits. Health care and life insurance benefits are provided to both
retired and active employees through third-party administrators and
insurance companies.
34
<PAGE> 35
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------
Information for the Company's pension and postretirement benefit plans is shown
in the following schedule:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------------- ----------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 78,154 $ 85,262 $ 15,507 $ 13,235
Service cost 946 1,169 117 275
Interest cost 5,647 5,361 905 913
Actuarial (gain)/loss 7,155 (6,666) (1,553) 391
Benefits paid (6,641) (6,461) (1,741) (1,301)
Effect of curtailment -- (357) -- (740)
--------- --------- --------- ---------
Benefit obligation at end of year $ 85,261 $ 78,308 $ 13,235 $ 12,773
========= ========= ========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year $ 108,161 $ 117,580 $ 3,957 $ 3,596
Actual return on plan assets 15,915 14,428 117 181
Company contributions 144 136 1,262 1,347
Benefits paid from plan assets (6,641) (6,461) (1,740) (1,301)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 117,579 $ 125,683 $ 3,596 $ 3,823
========= ========= ========= =========
Funded status of plan $ 32,317 $ 47,375 $ (9,639) $ (8,949)
Unrecognized net gain (12,783) (23,602) (9,560) (8,992)
Unrecognized prior service cost 4,483 3,182 (873) (750)
--------- --------- --------- ---------
Prepaid (accrued) benefit cost $ 24,017 $ 26,955 $ (20,072) $ (18,691)
========= ========= ========= =========
AMOUNTS RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEET
Prepaid benefit cost $ 25,222 $ 28,266 $ -- $ --
Accrued benefit liability (1,206) (1,311) (20,072) (18,691)
Fresh start adjustment (9,131) (8,459) -- --
--------- --------- --------- ---------
Net amount recognized $ 14,885 $ 18,496 $ (20,272) $ (18,691)
========= ========= ========= =========
</TABLE>
35
<PAGE> 36
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------------ -----------------------------------
Fiscal Year Ended Fiscal Year Ended
----------------- -----------------
January 3, January 2, January 1, January 3, January 2, January 1,
1998 1999 2000 1998 1999 2000
-------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Expense
Service cost $ 887 $ 946 $ 1,169 $ 210 $ 117 $ 275
Interest cost 5,617 5,647 5,361 1,105 905 913
Expected return on assets (8,610) (9,441) (10,297) (300) (302) (277)
Amortization of prior service cost 378 378 397 (105) (105) (105)
Amortization of actuarial loss 38 30 (241) (432) (555) (404)
Fresh start amortization (672) (672) (672) -- -- --
-------- -------- -------- -------- -------- --------
Net cost before plant closure (2,362) (3,112) (4,283) 478 60 402
One time expense (benefit) plant
closure -- -- 810 -- -- (757)
-------- -------- -------- -------- -------- --------
Net periodic expense (income) $ (2,362) $ (3,112) $ (3,473) $ 478 $ 60 $ (355)
======== ======== ======== ======== ======== ========
Weighted average assumptions
Discount Rate for Obligations 7.25% 6.75% 7.25% 7.25% 6.75% 7.25%
Discount Rate for Expense 7.75 7.25 6.75% 7.75 7.25 6.75
Expected Return Rate on Plan Assets 9.00 9.00 9.00 8.00 8.00 8.00
Rate of Compensation Increase 4.00 4.00 4.00 -- -- --
Health Care Cost Trend Rate -- -- -- 9.00 8.00 7.00
</TABLE>
For postretirement benefit plans, Florsheim assumed 7.0% annual rate of
increase in the per capita costs of covered health care benefits (the
health care cost trend rate) for fiscal 1999, and 6.0% in fiscal 2000 and
thereafter. A one percent increase in the health care cost trend rate would
result in an increase in Florsheim's accumulated postretirement benefit
obligation as of January 1, 2000 by $136 and the interest and services cost
by $31. A decrease of 1% would result in decreases of $128 and $28,
respectively.
Florsheim has Supplemental Pension Plans in place with an accumulated
obligation in excess of plan assets, which are reflected in the prepaid
pension cost above on a net basis. In the Consolidated Balance Sheets they
are recorded in Other liabilities. These plans cover certain executives of
the Company and employees covered under pre-ERISA regulations. For the
years ended January 2, 1999 and January 1, 2000, the Projected Benefit
Obligation is $1,362 and $1,523, respectively, and the Accumulated Benefit
Obligation is $1,205 and $1,311, respectively. There are no assets in the
plan.
The Company maintains a 401(K) plan that allows employees to contribute a
portion of their pre-tax and/or after tax income in accordance with
specified guidelines. Florsheim matches a percentage of employee
contributions up to certain limits. Florsheim's cost for this plan for
fiscal 1997, 1998 and 1999 was $143, $109 and $92, respectively.
(10) LEASE COMMITMENTS
Substantially all of Florsheim's retail outlets and certain other real
properties and equipment are operated under lease agreements expiring at
various dates through the year 2016. Leases covering retail outlets and
equipment generally require, in addition to stated minimums, contingent
rentals based on retail sales and
36
<PAGE> 37
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
equipment usage. Certain of the leases provide for renewal for various
periods at stipulated rates. Rental expenses under operating leases were as
follows:
Fiscal Year Ended
-----------------------------
January 3, January 2, January 1,
1998 1999 2000
------- ------- -------
Basic rentals $16,604 $21,087 $17,782
Contingent rentals 6,540 191 141
------- ------- -------
23,144 21,278 17,923
Less: sublease rentals -- -- 88
------- ------- -------
$23,144 $21,278 17,835
======= ======= =======
Minimum future annual rental commitments under non-cancelable operating
leases in each of the five fiscal years 2000 through 2004 are $13,180,
$11,321, $10,295, $9,131 and $7,074, respectively, and in aggregate for all
lease agreements, $71,946 through the end of the lease terms. At January 1,
2000, Furniture Brands International, Inc. guaranteed future base operating
lease payments on behalf of Florsheim of approximately $10,000, exclusive
of related operating expenses.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the following long-term debt are based on closing market
prices at year end for the Senior Notes and on the outstanding balance for
the bank credit facility:
<TABLE>
<CAPTION>
January 2, 1999 January 1, 2000
---------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
12-3/4% Senior Notes due 2002$ 18,412 $ 19,448 $ 18,412 $ 17,860
Bank Credit Facility 58,500 58,500 65,000 65,000
</TABLE>
(12) TRANSACTIONS WITH AFFILIATES
In 1994, a consulting agreement was established with Apollo Advisors, L.P.,
an affiliate of Florsheim's controlling shareholders. Charges totaled $400
per year for fiscal years 1997, 1998 and 1999.
(13) LITIGATION
Florsheim is involved in a number of pending or threatened legal
proceedings in the ordinary course of business. In the opinion of
management, the ultimate liability, if any, of Florsheim from all such
proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of Florsheim.
37
<PAGE> 38
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
(14) OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
Items included in other assets are as follows:
January 2, January 1,
1999 2000
------- -------
<S> <C> <C>
Prepaid pension $16,091 $19,807
Investment in unconsolidated subsidiaries 4,389 4,980
Deferred financing costs 1,058 1,844
Other 3,869 3,689
------- -------
Total other assets $25,407 $30,320
======= =======
<CAPTION>
Items included in other accrued expenses are as follows:
January 2, January 1,
1999 2000
------- -------
<S> <C> <C>
Taxes-general $ 295 $ 327
Postretirement benefits other than pensions 950 950
Group insurance 711 840
Accrued selling and advertising costs 1,536 1,757
Other 3,628 4,921
------- -------
Total other accrued expenses $ 7,120 $ 8,795
======= =======
</TABLE>
(15) BUSINESS SEGMENTS
Effective for fiscal 1998 reporting the Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS
No. 131). SFAS No. 131 establishes standards for reporting information
about operating segments, products and services, geographic areas and major
customers. The presentation of segments information reflects the manner in
which management organizes segments for making operating decisions and
assessing performance. Prior year amounts have been restated to conform to
SFAS No. 131. Under the provisions of the new standard, Florsheim has three
reportable segments: U.S. Wholesale, U.S. Retail and International. U. S.
Wholesale distributes footwear to large national retailers, department
stores, independent shoe stores and to Company operated specialty and
outlet stores. U.S. Wholesale also includes certain corporate expenses and
assets which are not charged to other reportable segments. U. S. Retail
consists of specialty retail shoe shops and outlet stores. International
consists of wholesale and retail operations in Australia, Canada, the
Pacific Rim, Europe and export business.
The Company's reportable segments are organized according to the markets
which they serve. The segment disclosures are on a basis consistent with
internal management reporting. Sales of product from U.S. Wholesale to U.S.
Retail and International include a standard mark-up, which is eliminated in
consolidation. The cost of certain corporate functions are charged to the
segments, however no allocation of debt or income taxes is made to the
individual segments. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.
38
<PAGE> 39
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
Operating segment information is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
----------------- -----------------
January 3, January 2, January 1, January 3 January 2, January 1,
1998 1999 2000 1998 1999(1) 2000(2)
---- ---- ---- ---- ------- -------
Net Sales Earnings (Loss) from Operations
------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Wholesale $ 82,413 $ 88,140 $ 96,695 $ 13,676 $ 13,829 $ 1,767
U. S. Retail 120,022 112,355 103,141 (4,594) (8,703) (6,791)
International 50,621 44,400 45,890 3,139 1,943 4,540
-------- -------- -------- -------- -------- --------
$253,056 $244,895 $245,726 $ 12,221 $ 7,069 $ (484)
======== ======== ======== ======== ======== ========
Depreciation and Amortization Capital Expenditures
--------------------------- ------------------------------
<CAPTION>
U. S. Wholesale $ 1,310 $ 1,109 $ 2,179 $ 3,476 $ 7,805 $ 5,803
U. S. Retail 3,359 3,079 3,328 5,851 1,825 1,887
International 756 749 738 595 678 772
------- ------- ------- ------- ------- -------
$ 5,425 $ 4,937 $ 6,245 $ 9,922 $10,308 $ 8,462
======= ======= ======= ======= ======= =======
Total Assets
------------------------------
<CAPTION>
U. S. Wholesale $ 77,111 $105,459 $105,956
U.S. Retail 82,720 71,544 69,112
International 23,815 22,563 22,284
-------- -------- --------
$183,646 $199,566 $197,352
======== ======== ========
</TABLE>
(1) Includes charge of $3,261 for retail store closings
(2) Includes charge of $5,022 for plant closing expenses, cost associated
with the disposition of the Golf division, severance, costs associated
with the downsizing of corporate headquarters and New York showroom
space, cost associated with the resignation of the Company's former
Chairman and costs related to the Company's evaluation of strategic
alternatives.
Summary geographic information is as follows:
Fiscal Year Ended Fiscal Year Ended
----------------- -----------------
January 3, January 2, January 1 January 3, January 2, January 1,
1998 1999 2000 1998 1999 2000
---- ---- ---- ---- ---- ----
Net Sales Total Assets
------------------------------ ------------------------------
United States $202,435 $200,495 $199,836 $159,831 $177,003 $175,068
Other 50,621 44,400 45,890 23,815 22,563 22,284
-------- -------- -------- -------- -------- --------
Total $253,056 $244,895 $245,726 $183,646 $199,566 $197,352
======== ======== ======== ======== ======== ========
39
<PAGE> 40
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 2, 1999
Net sales $ 58,670 $ 61,812 $ 60,258 $ 64,155
Gross profit 27,784 28,650 27,472 25,670
Earnings (loss) from operations 2,886 3,194 3,237 (2,248)
Net earnings (loss) 526 598 563 (2,246)
Common stock price range (high-low) $10.75-6.31$11.00-7.88 $9.75-6.00 $ 8.00-4.38
Common stock price
at end of quarter $ 8.75 $ 9.00 $ 6.50 $ 4.75
Basic earnings (loss) per share:
Net earnings (loss) 0.06 0.07 0.07 (0.27)
Weighted average number of
common shares outstanding 8,413 8,413 8,413 8,428
Diluted earnings (loss) per share:
Net earnings (loss) 0.06 0.07 0.07 (0.27)
Weighted average number of
common shares outstanding 8,573 8,588 8,612 8,428
FISCAL YEAR ENDED JANUARY 1, 2000
Net sales $ 63,525 $ 62,544 $ 57,455 $ 62,202
Gross profit 30,123 29,747 22,100 24,206
Earnings (loss) from operations 3,938 1,525 (3,914) (2,033)
Earnings (loss) before extraordinary item 979 (587) (5,622) (2,388)
Extraordinary item -- -- (750) --
Net earnings (loss) 979 (587) (6,372) (2,388)
Common stock price
range (high-low) $7.50-4.63 $ 8.00-5.38 $6.00-2.47 $ 3.81-2.19
Common stock price
at end of quarter $ 5.44 $ 5.63 $ 2.47 $ 2.81
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.12 $ (0.07) $ (0.66) $ (0.28)
Extraordinary item -- -- (0.09) --
Net earnings (loss) 0.12 (0.07) (0.75) (0.28)
Weighted average number of
common shares outstanding 8,454 8,454 8,454 8,464
Diluted earnings per share:
Earnings (loss) before extraordinary item $ 0.11 $ (0.07) $ (0.66) $ (0.28)
Extraordinary item -- -- (0.09) --
Net earnings (loss) 0.11 (0.07) (0.75) (0.28)
Weighted average number of
common shares outstanding 8,526 8,454 8,454 8,464
</TABLE>
40
<PAGE> 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors-Nominees" and "Section 16(a)
Beneficial Ownership Reporting Compliance" to be included in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 17, 2000 are incorporated herein by reference.
The names, ages, and positions of the Executive Officers of the Company
are:
Name Age Position
Peter P. Corritori, Jr. 46 Chairman of the Board of Directors and
Chief Executive Officer
Richard J. Anglin 43 Executive Vice President,
Chief Financial Officer
L. David Sanguinetti 55 Executive Vice President,
Chief Operating Officer
Thomas W. Joseph 48 Senior Vice President,
President, International Division
MR. CORRITORI was elected Chairman of the Board of Directors and Chief
Executive Officer of the Company in March 2000. From February 1991 to December
1999, Mr. Corritori was President of Gant USA and President of The Designer
Group, operating divisions of Phillips Van Heusen Corporation, a diversified
apparel and footwear company. From June 1985 to December 1990, Mr. Corritori
served as President of two divisions of Cluett Peabody, an apparel manufacturer.
MR. ANGLIN was elected Executive Vice President in June 1999 and was
previously Chief Financial Officer since December 1997. From August 1996 to
November 1997, Mr. Anglin served as Vice President of Store Operations at
Service Merchandise where he was responsible for the operations of 400 stores.
From 1990 through July 1996, Mr. Anglin was Vice President of Operations and
Chief Financial Officer for Mark Shale, a specialty retailer of men and women's
clothing. In November 1995, Mark Shale filed a petition for relief under Chapter
11 of the Federal Bankruptcy Code. Mr. Anglin has also held various financial
positions with Marshall Fields department stores and was a member of the tax
department of Arthur Andersen & Company.
MR. SANGUINETTI was appointed Executive Vice President, Chief Operating
Officer in February 1997 and was previously President, Retail Division from
April 1996 through June 1999. From August 1995 through April 1996, Mr.
Sanguinetti served as President and Chief Operating Officer for Chernin's Shoes,
a retail family shoe company. From August 1994 to July 1995, Mr. Sanguinetti
served as President of Crystal Brands Inc., a multi-division apparel company.
From May 1987 to July 1994 he was employed by Yonkers Department Store and
previously held several senior officer positions at other department stores in
multi-store management and merchandising.
MR. JOSEPH was elected Senior Vice President in June 1999 and was
previously President, International Division since January 1996 and served as
Vice President-Retail Shops Division (Florsheim Shoe Shops and Florsheim Thayer
McNeil stores - 1991 to April 1996). Mr. Joseph was previously Vice President,
Marketing of Florsheim Australia Limited (1988-1991) and Vice President,
Florsheim Thayer McNeil Stores (1986-1988). Prior to that time, Mr. Joseph also
held the positions of General Manager, International Retail Stores (Florsheim
Shoe Shops), and Regional Supervisor of Retail Stores and Retail Stores Area
Manager.
41
<PAGE> 42
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Election of Directors - Compensation and Organization of
Board of Directors," "Executive Compensation," and "Comparative Stock and
Performance Graph" to be included in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on May 17, 2000, are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership" to be included in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 17, 2000, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled "Executive Compensation - Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" to be included
in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 17, 2000, are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1. Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000.
Consolidated Statements of Operations and Comprehensive Earnings
for the Fiscal Years Ended January 3, 1998, January 2, 1999, and
January 1, 2000.
Consolidated Statements of Cash Flows for the Fiscal Years Ended
January 3, 1998, January 2, 1999, and January 1, 2000.
Consolidated Statements of Shareholders' Equity for the Fiscal
Years Ended January 3, 1998, January 2, 1999, and January 1, 2000.
Notes to Consolidated Financial Statements.
Independent Auditors' Report
2. Financial Statement Schedules:
Valuation and Qualifying Accounts (Schedule II)
All other schedules are omitted as the required information is
presented in the consolidated financial statements or related
notes or are not applicable.
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 as filed with the Company's Annual Report on
Form 10-K for the year ended December 28, 1996).
42
<PAGE> 43
3.2 Restated by-laws of the Company (incorporated by reference to Exhibit
3.2 as filed with the Company's Annual Report on Form 10-K for the
year ended December 28, 1996).
4.1 Indenture, dated as of November 17, 1994, among the Company, certain
of its subsidiaries and First Fidelity Bank, National Association,
(now named First Union National Bank), as Trustee, including form of
Senior Note (incorporated by reference to Exhibit 4.1 by The Florsheim
Shoe Company Registration Statement on Form 10/A, Amendment No. 3).
4.2 First Supplemental Indenture, dated as of April 19, 1997, amending and
supplementing the Indenture dated as of November 17, 1994, among the
Company, certain of its subsidiaries and First Union National Bank, as
trustee (incorporated by reference to Exhibit 4.1 as filed with the
Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended
March 29, 1997).
4.3 Amended and Restated Credit Agreement dated August 23, 1999 among the
Company and BT Commercial Corporation, as agent, and Lenilus party
thereto (incorporated by reference to Exhibit 4.1 as filed with the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
October 2, 1999
4.4 First Amendment to Credit Agreement, dated December 3, 1999, among the
Company and BT Commercial Corporation, individually and as agent, and
Lenders party thereto.
10.1 Registration Rights Agreement, dated as of November 17, 1994, between
the Company and Apollo Interco Partners, L.P. (incorporated by
reference to Exhibit 10.2 by The Florsheim Shoe Company Registration
Statement on Form 10/A, Amendment No. 3).
10.2 License and Technical Assistance Agreement, dated February 4, 1994,
between Florind Shoes Limited and INTERCO INCORPORATED, acting by and
through its Florsheim Shoe Company Division (incorporated by reference
to Exhibit 10.3 filed by The Florsheim Shoe Company Registration
Statement on Form S-1, and all amendments thereto, File No. 33-83204).
10.3 License and Technical Assistance Agreement, dated February 4, 1994,
between Floram Shoes India, Ltd. and INTERCO INCORPORATED, acting by
and through its Florsheim Shoe Company Division (incorporated by
reference to Exhibit 10.4 filed by The Florsheim Shoe Company
Registration Statement on Form S-1, and all amendments thereto, File
No. 33-83204).
10.4 Export Sales Agreement, dated February 4, 1994, between Floram Shoes
India, Ltd. and INTERCO INCORPORATED, acting by and through its
Florsheim Shoe Company Division (incorporated by reference to Exhibit
10.5 by filed The Florsheim Shoe Company Registration Statement on
Form S-1, and all amendments thereto, File No. 33-83204).
10.5 Export Sales Agreement, dated as of February 4, 1994, between Florind
Shoes Limited and INTERCO INCORPORATED, acting by and through its
Florsheim Shoe Company Division (incorporated by reference to Exhibit
10.6 filed by The Florsheim Shoe Company Registration Statement on
Form S-1, and all amendments thereto, File No. 33-83204).
10.6 Renewed Joint Venture Agreement, dated February 4, 1994, among Shri K.
Ameenur Rahman, Floram Shoes India, Ltd., Florind Shoes Limited and
INTERCO INCORPORATED, acting by and through its Florsheim Shoe Company
Division (incorporated by reference to Exhibit 10.7 filed by The
Florsheim Shoe Company Registration Statement on Form S-1, and all
amendments thereto, File No. 33-83204).
10.7 Florsheim Supplemental Employee Retirement Plan (incorporated by
reference to Exhibit 10.10 filed by The Florsheim Shoe Company
Registration Statement on Form S-1, and all amendments thereto, File
No. 33-83204).
43
<PAGE> 44
10.8 Consulting Agreement, dated as of November 17, 1994, between Apollo
Advisors, L.P. and the Company (incorporated by reference to Exhibit
10.11 by The Florsheim Shoe Company Registration Statement on Form
10/A, Amendment No. 3).
10.9 1994 Stock Option Plan, as amended and restated as of March 15, 1996
(incorporated by reference to Exhibit 10.1, as filed with the
Company's Registration Statement on Form S-8 no. 333-06353).
10.10 Charles J. Campbell Stock Option Plan, as amended and restated as of
March 15, 1996 (incorporated by reference to Exhibit 10.2, as filed
with the Company's Registration Statement on Form S-8 no.
333-06353).
10.11 Consultants' Stock Option Plan, as amended and restated as of
December 17, 1997 (incorporated by reference to Exhibit 10, as filed
with the Company's Registration Statement on Form S-8 no.
333-42495).
10.12 Lease Agreement dated September 6, 1996 between Teachers Insurance
and Annuity Association of America, a New York corporation, (the
"Landlord") and The Florsheim Shoe Company (incorporated by
reference to Exhibit 10.1 as filed with the Company's Quarterly
Report on form 10-Q, for the Quarterly Period ended September 28,
1996).
10.13 Settlement and Release Agreement, dated June 22, 1999, between
Charles J. Campbell and the Company.
10.14 Employment Security Agreement, dated December 13, 1999, by and
between the Company and Richard Anglin.
10.15 Employment Security Agreement, dated December 13, 1999, by and
between the Company and Thomas W. Joseph
10.16 Employment Security Agreement, dated December 13, 1999, by and
between the Company and Dave Sanguinetti.
10.17 Employment Agreement, dated March 23, 2000, by and between the
Company and Peter Corritori.
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.
27 Financial Data Schedule
(b) Reports on Form 8-K.
A Form 8-K was not required to be filed during the last quarter of the
fiscal year ended January 1, 2000.
UPON WRITTEN REQUEST TO THE COMPANY'S CHIEF FINANCIAL OFFICER, THE COMPANY
WILL FURNISH SHAREHOLDERS WITH A COPY OF ANY OR ALL SUCH EXHIBITS
REQUESTED AT A CHARGE OF TEN CENTS PER PAGE, WHICH REPRESENTS THE
COMPANY'S REASONABLE EXPENSES IN FURNISHING SUCH EXHIBITS.
44
<PAGE> 45
FLORSHEIM GROUP INC. SCHEDULE II
-----------
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COSTS CHARGED OTHER BALANCE AT
FISCAL BEGINNING AND TO OTHER CHARGES YEAR
YEAR DESCRIPTION OF YEAR EXPENSES ACCOUNT ADD (DEDUCT) (1) END
---- ----------- ------- -------- ------- ---------------- ---
<S> <C> <C> <C> <C> <C> <C>
1997 Allowance for doubtful accounts 1,705 1,734 -- (2,355) 1,084
1989 Allowance for doubtful accounts
and cash discounts 1,084 1,288 -- (1,165) 1,207
1999 Allowance for doubtful accounts
and cash discounts 1,207 3,837 -- (3,569) 1,475
</TABLE>
(1) Includes write offs for bad debts and cash discounts allowed
45
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Florsheim Group Inc.:
We have audited the consolidated balance sheets of Florsheim Group Inc. and
subsidiaries (the Company) as of January 2, 1999 and January 1, 2000 and the
consolidated statements of operations and comprehensive earnings, cash flows,
and shareholders' equity for the years ended January 3, 1998, January 2, 1999,
and January 1, 2000. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as listed in
the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of management of Florsheim Group Inc.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Florsheim Group Inc.
and subsidiaries as of January 2, 1999 and January 1, 2000 and the results of
their operations and their cash flows for the years ended January 3, 1998,
January 2, 1999, and January 1, 2000 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Chicago, Illinois
March 21, 2000
46
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FLORSHEIM GROUP INC.
--------------------
(Registrant)
/s/ Richard J. Anglin
---------------------------------------
Richard J. Anglin
Executive Vice President, Chief Financial Officer
Date: March 30, 2000
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 30, 2000.
Signature Title
--------- -----
/s/ Peter P. Corritori Chairman of the Board of Directors
- ---------------------------------------- and Chief Executive Officer
Peter P. Corritori, Jr.
/s/ Adam M. Aron Director
- ----------------------------------------
Adam M. Aron
Director
- ----------------------------------------
Bernard Attal
/s/ Robert H. Falk Director
- ----------------------------------------
Robert H. Falk
/s/ Michael S. Gross Director
- ----------------------------------------
Michael S. Gross
/s/ John J. Hannan Director
- ----------------------------------------
John J. Hannan
/s/ Joshua J. Harris Director
- ----------------------------------------
Joshua J. Harris
/s/ John H. Kissick Director
- ----------------------------------------
John H. Kissick
/s/ Ronald J. Mueller Director
- ----------------------------------------
Ronald J. Mueller
/s/ Michael D. Weiner Director
- ----------------------------------------
Michael D. Weiner
/s/ Richard J. Anglin Executive Vice President,
- ---------------------------------------- Chief Financial Officer
Richard J. Anglin (Principal Financial Officer)
/s/ F. Terrence Blanchard Vice President, Controller
- ---------------------------------------- (Principal Accounting Officer)
(F. Terrence Blanchard)
47
<PAGE> 1
EXHIBIT 4.4
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "Amendment") is made on
this 3rd day of December, 1999 by and among Florsheim Group Inc. The Florsheim
Shoe Store Company - Northeast, The Florsheim Shoe Store Company - West,
Florsheim Occupational Footwear, Inc., and L.J. O'Neill Shoe Co. (collectively,
the "Borrowers"), each of the financial institutions from time to time a party
thereto (individually, a "Lender " and collectively the "Lenders") and BT
Commercial Corporation, (individually ("BTCC") and is its capacity as agent (the
"Agent").
WITNESSETH:
WHEREAS, the Agent the Lender and the Borrowers are parties to that
certain Credit Agreement dated as of August 23, 1999 (the `Credit Agreement");
and
WHEREAS, the parties desire to amend the Credit Agreement, as more
fully set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and the other good and valuable consideration, the adequacy of which
is hereby acknowledged, and subject to the terms and conditions hereof, the
parties hereto agree as follows:
SECTION 1 DEFINITIONS. Unless otherwise defined herein, all
capitalized terms shall have the meaning given to them in the Credit Agreement.
SECTION 2 AMENDMENTS TO CREDIT AGREEMENT.
2.1 Section 1.1 of the Credit Agreement is hereby amended by deleting
subsection (b) of the defined term "Borrowing Base", and inserting the following
is its stead:
"(b) the lesser of (i) $50,000,000,and (ii) (1) during the period from
December 3, 1999 through and including December 31, 1999, and
subject to Section 4.6(e) hereof, seventy percent (70%), (2)
during the period from January 1, 2000 through and including
January 31, 2000, and subject to Section 4.6(e) hereof,
sixty-seven and one-half percent (67.5%), (3) during the months of
May, June, July, August, September, and October during the term
hereof, seventy percent (70%), and (4) at all other times during
the term hereof, sixty-five percent (65%), of Eligible Inventory,
plus"
2.2 Section 1.1 of the Credit Agreement is hereby further amended by
inserting the following additional text immediately following subsection (ii) of
the defined term "Fixed Asset and Intellectual Property Sublimit", and
renumbering existing subsection (iii) to subsection (iv):
"(iii) $900,000 on the last day of each calendar quarter during the term hereof,
commencing with the calendar quarter ending June 30, 2000;"
<PAGE> 2
2.3 Section 1.1 of the Credit Agreement is hereby further amended by
(i) deleting the phrase "two and three-quarters percent (2.75%)" in the defined
term "LIBOR Rate Margin", and inserting "three percent (3%)" in its stead, and,
(ii) deleting the pricing grid contained therein and inserting the following in
its stead:
- --------------------------------------------------------------------------------
Range of Ratio LIBOR Rate Margin
- --------------------------------------------------------------------------------
2.0 to 1 or greater, but 2.75%
less than 2.5
- --------------------------------------------------------------------------------
2.5 to 1 or greater, but 2.50%
less than 3.0 to 1
- --------------------------------------------------------------------------------
3.0 to 1 or greater, but 2.25%
less than 3.5 to 1
- --------------------------------------------------------------------------------
3.5 to 1 or greater 2.00%
- --------------------------------------------------------------------------------
2.4 Section 2.2(b)(ii)(B) of the Credit Agreement is hereby amended by
deleting the phase "ten percent (10%) of the Borrowing Base", and inserting
"3,000,000" in its stead.
2.5 Section 4.6 of the Credit Agreement is hereby amended by the
addition of the following new subsection (e):
"(e) If Florsheim shall incur any Indebtedness from Florsheim Australia
Limited, Florsheim shall prepay the outstanding balance of the
Revolving Loans at the time of the receipt of the proceeds of such
Indebtedness in an amount equal to the lesser of (i) the Revolving
Loans then outstanding, or (ii) the amount of the proceeds
received with respect to such Indebtedness. Any prepayments
required to be made under this subsection (e) shall not constitute
a permanent reduction of the Line of Credit, provided, however, if
any such prepayments are received during the period from December
3, 1999 through and including January 31, 2000, the advance rate
then in effect with respect to Eligible Inventory shall
immediately be reduced to sixty five percent (65%)".
SECTION 3. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon satisfaction of the following conditions precedent:
3.1 Agent shall have received copies of this Amendment duly executed by
the Borrowers, and the Lender.
3.2 Agent shall have received such other documents, certificates and
assurances as it shall reasonably request.
SECTION 4. REAFFIRMATION OF BORROWERS. The Borrowers hereby represent
and warrant to Agent and Lender that (i) the representations and warranties set
forth in Section 5 of the Credit Agreement are true and correct on and as of the
date hereof, except to the extent (a) that any such representations or
warranties relate to a specific date, or (b) of changes thereto as a result of
transactions for which Agent and Lender have granted their consent; (ii) the
Borrowers are on the date hereof in compliance with all of the terms and
provisions set forth in
<PAGE> 3
the Credit Agreement as hereby amended; and (iii) upon execution hereof no
Default or Even of Default has occurred and is continuing or has not previously
been waived.
SECTION 5. FULL FORCE AND EFFECT. Except as herein amended, the Credit
Agreement and all other Credit Documents shall remain in full force and effect.
SECTION 6. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
IN WINTESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed and delivered in Chicago, Illinois by their proper and
duly authorized officers as of the date first set forth above.
BORROWER:
FLORSHEIM GROUP INC.
By: Richard J. Anglin
-----------------------------------
Name: Richard J. Anglin
----------------------------
Title: EVP - CFO
--------------------------
THE FLORSHEIM SHOE STORE COMPANY -
NORTHEAST
By: Richard J. Anglin
-----------------------------------
Name: Richard J. Anglin
----------------------------
Title: EVP - CFO
--------------------------
FLORSHEIM OCCUPATIONAL FOOTWEAR, INC.
By: Richard J. Anglin
-----------------------------------
Name: Richard J. Anglin
----------------------------
Title: EVP - CFO
--------------------------
L.J. O'NEILL SHOE CO.
By: Richard J. Anglin
-----------------------------------
Name: Richard J. Anglin
----------------------------
Title: EVP - CFO
--------------------------
<PAGE> 4
AGENT:
BT COMMERCIAL CORPORATION, as Agent
By: Steve Friedlander
-----------------------------------
Name: Steve Friedlander
------------------------------
Title: Vice President
------------------------------
LENDERS:
BT COMMERCIAL CORPORATION
By: Steve Friedlander
-----------------------------------
Name: Steve Friedlander
------------------------------
Title: Vice President
------------------------------
LASALLE BANK NATIONAL ASSOCIATION
By: Steven M. Marks
-----------------------------------
Name: Steven M. Marks
------------------------------
Title: First VP
------------------------------
DIME COMMERCIAL CORP.
By: Thomas M. Watson
-----------------------------------
Name: Thomas M. Watson
------------------------------
Title: Vice President
------------------------------
<PAGE> 1
EXHIBIT 10.13
SETTLEMENT AND RELEASE AGREEMENT
This is an agreement between you, Charles J. Campbell, (on behalf of
yourself, your spouse, your family, and anyone acting for you including
attorneys, agents, representatives, heirs, executors, and assigns) ("You"or
"Campbell"), and Florsheim Group, Inc. (on behalf of its present or former
parents, subsidiaries, affiliates, companies, insurers, predecessors,
successors, assigns, agents and each of them, and any and all Florsheim
employees, officers, directors and attorneys acting on behalf of Florsheim or in
their individual and personal capacities) (Collectively referred to as
"Florsheim" of "The Company").
1. PAYMENTS AND OTHER CONSIDERATION. As consideration for the
agreements and covenants set forth in this Settlement and Release Agreement
("Agreement"), you will be paid a total, gross amount equal to twelve months of
severance at your current base salary ($500,000) less legally required
withholdings. First, Florsheim will continue your salary payments for the next
six months in the total, gross amount of two hundred fifty thousand dollars. The
payments described in this paragraph will be made in the same manner in which
you are currently compensated by the Company. Second, the remaining portion of
two hundred fifty thousand dollars will be paid in twelve equal monthly amounts
of twenty thousand eight hundred thirty three dollars ($20,833) beginning thirty
days after the conclusion of the salary continuation period and concluding
twelve months thereafter. In addition, Florsheim will maintain your current
health insurance for twelve months commencing July 1, 1999 and ending June 30,
2000. Your eligibility for COBRA will commence on July 1, 2000. Florsheim also
agrees to vest those options that would otherwise have vested on September 5,
1999 under the terms of the Company's Charles J. Campbell Stock Option Plan.
Finally, you will retain the facsimile, notebook computer and cellular phone
currently in your possession provided that you bear all ongoing expenses for
these machines. You will continue to accrue credited service towards the
Florsheim Group defined benefit pension plan until September 5, 2000. Florsheim
will also provide, upon request, a mutually agreeable reference letter. You will
immediately return all other company property, including all credit cards. The
parties agree that this is sufficient and adequate consideration and does not
represent any payment to which you are otherwise entitled.
The foregoing benefits are in addition to and exceed that to which you
would be entitled to receive without signing this Agreement.
2. CONFIDENTIAL INFORMATION.
(a) Campbell acknowledges that, by reason of Campbell's
employment by the Company, Campbell had access to confidential information and
knowledge pertaining to products, inventions, discoveries, improvements,
inventions, designs, ideas, trade secrets, proprietary information,
manufacturing, packaging, advertising, distribution and sales methods, sales and
profit figures, customer and client lists and relationships between Company and
dealers, distributors, sales representatives, wholesalers, customers, clients,
suppliers and others who have business dealings with them ("Confidential
Information"). Employee acknowledges that such Confidential Information is a
valuable and unique asset of Company and covenants that, both
<PAGE> 2
during and after the payment of severance to Campbell, Campbell will not
disclose any Confidential Information to any person without the prior written
authorization of the Company Board. The obligation of confidentiality imposed by
this section shall not apply to information that becomes generally known in the
industry through no act of Campbell in breach of this Agreement.
(b) Campbell acknowledges that all documents, files and other
materials received from the Company during the Employment Term (with the
exception of documents relating to Campbell's compensation or benefits to which
Campbell is entitled following the Employment Term) were for use of Campbell
solely in discharging Campbell's duties and responsibilities hereunder and that
Campbell has no claim or right to the continued use or possession of such
documents, files or other materials. Campbell agrees that he will not retain any
such documents, files or other materials and will promptly return to the Company
any documents, files or other materials in his possession or custody, except
that Campbell shall be entitled to retain a copy of correspondence written by
him so long as the Company also has a copy and such correspondence does not
contain Confidential Information.
3. NON-COMPETITION. During the severance term and for six months
thereafter Campbell shall not, unless acting pursuant hereto or with the prior
written consent of the Company Board, directly or indirectly, own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing or control of, or be connected as an officer, director,
employee, partner, principal, agent, representative, consultant or otherwise
with, or use or permit Campbell's name to be used in connection with any
Competing Business (defined below); provided, however, that notwithstanding the
foregoing, this provision shall not be construed to prohibit the ownership by
Campbell of not more than 1% of the capital stock of any corporation which is
engaged in any of the foregoing businesses having a class of securities
registered pursuant to the Exchange Act.
The Term "Competing Business" shall mean any business or enterprise
engaged in the business of designing, manufacturing, distributing, marketing or
selling men's dress, dress casual or casual footwear within (i) any state of the
United States or the District of Columbia or (ii) any foreign country in which
Company or any of its subsidiaries engages in such business; provided, however,
that if a business or enterprise has subsidiaries or units engaged in such
business that provide less than five percent of the overall revenues of such
business or enterprise, and Campbell is not directly involved in any aspect of
the business of such subsidiaries or units, such business or enterprise shall
not constitute a Competing Business for purposes of this Agreement.
In the event that the provisions of this paragraph should ever be
adjudicated to exceed the time, geographic, product or other limitations
permitted by applicable law in any jurisdiction, then such provisions shall be
deemed reformed in such jurisdiction to the maximum time, geographic, product or
other limitations permitted by applicable law.
4. EQUITABLE RELIEF. Employee acknowledges that the restrictions
contained in paragraphs 2 and 3 hereof are, in view of the nature of the
business of the Company and its subsidiaries, reasonable and necessary to
protect the legitimate interests of the Company, and that any violation of any
provision of those paragraphs may result in irreparable injury to the
<PAGE> 3
Company. Campbell also acknowledges that in the event of any such violations,
the Company shall be entitled to preliminary and permanent injunctive relief,
without the necessity of proving actual damages and to an equitable accounting
of all earnings, profits and other benefits arising from any such violation,
which rights shall be cumulative and in addition to any other rights or remedies
to which the Company may be entitled. Campbell agrees that in the event of any
such violation, an action may be commenced for any such preliminary and
permanent injunctive relief and other equitable relief in any federal or state
court of competent jurisdiction sitting in Chicago, Illinois or in any other
court of competent jurisdiction. Campbell hereby waives, to the fullest extent
permitted by law, any objection that Campbell may now or hereafter have to such
jurisdiction or to the laying of the venue of any such suit, action or
proceeding brought in such a court and any claim that such suit, action or
proceeding has been brought in an inconvenient forum. Campbell agrees that
effective service of process may be made upon Campbell by mail at his home at
1170 North Elmtree Road, Lake Forest, Il., 60045.
5. COVENANT NOT TO SUE/RELEASE AND WAIVER. In exchange for the
benefits listed in paragraph one (1), you agree to release and never to
institute any suit, charge, complaint or action, at law or in equity, in any
court of the United States or any state thereof, or before any administrative
agency of either the United States or any state, county or municipality thereof,
or before any other tribunal, pubic or private, against the Company (which, as
defined in the preamble to this Agreement, includes all individuals, employees,
officers or directors, acting either in their business or individual capacities)
with respect to any and all known and unknown claims of any type, including but
not limited to those arising out of any aspect of your employment or the
termination of your employment, as of the date of the Agreement. This includes
claims that the Company:
- has violated its personnel policies, handbooks, contracts of
employment, or covenants of good faith and fair dealing
between you and the Company specifically including the
Agreement signed between you and the Company;
- has discriminated against you on the basis of age, race,
color, sex (including sexual harassment), national origin,
ancestry, disability, religion, sexual orientation, marital
status, parental status, source of income, entitlement to
benefits, or any union activities in violation of any local,
state or federal law, constitution, ordinance, or regulation,
including but not limited to: the Age Discrimination in
Employment Act, as amended; Title VII of the Civil Rights Act
of 1964, as amended; 42 U.S.C.ss. 1981, as amended; the Equal
Pay Act; the Americans With Disabilities Act; the Family
Medical Leave Act; the Employee Retirement Income Security
Act, Section 510; and the National Labor Relations Act; the
Illinois Human Rights Act; the Cook County Ordinance of Human
Relations; and the Chicago Ordinance on Human Relations; the
Fair Credit Reporting Act;
- has violated public policy or common law (including but not
limited to claims for retaliatory discharge; negligent hiring,
retention or supervision; defamation, intentional or negligent
infliction of emotional distress and/or mental anguish;
intentional interference with contract; negligence;
detrimental reliance; loss of consortium to you or any member
of your family and/or promissory estoppel;
<PAGE> 4
assault; battery); and
- excluded from this release are any claims which cannot be
waived by law, including but not limited to the right to file
an administrative charge of discrimination.
YOU UNDERSTAND THAT, OTHER THAN AS EXPRESSLY EXCEPTED HEREIN, THIS
RELEASE AND SETTLEMENT AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS AGAINST THE COMPANY TO THE DATE OF THIS AGREEMENT.
6. COVENANT NOT TO SUE/RELEASE AND WAIVER. In exchange for the
benefits listed in paragraphs two (2) and three (3), Florsheim agrees to release
and never to institute any suit, charge, complaint or action, at law or in
equity, in any court of the United States or any state thereof, or before any
administrative agency of either the United States or any state, county or
municipality thereof, or before any other tribunal, public or private, against
You (which, as defined in the preamble to this Agreement, includes all
attorneys, agents, representatives, heirs, executors, and assigns) with respect
to any and all known claims of any type including but not limited to those
arising out of any aspect of your employment or the termination of your
employment as of the date of the Agreement.
7. OTHER AGREEMENTS BY YOU. In addition by executing this
Agreement you are also agreeing that:
- You are entering into this Agreement knowingly, voluntarily,
and with full knowledge of its significance. You have not been
coerced, threatened, or intimidated into signing this
Agreement;
- You have been paid for all hours worked, that you have not
suffered any on-the-job injury for which you have not already
filed a claim, and that you have received all sick and
vacation pay and other benefits to which you are entitled.
8. NON-DISPARAGEMENT. Campbell agrees for himself and all others
acting on his behalf, either directly or indirectly, not to take, support,
encourage, induce or voluntarily participate in any action or attempted action
that would negatively comment on, disparage, or call into question the business
operations, proposals or conduct of the Company, or to act in any way that would
damage the reputation, business relations, or present or future business, or the
reputation of any past or present directors, executives, officers, employees,
agents or affiliates and subsidiaries of the Company. Campbell agrees that he
will not comment about the Company to any person or entity, except as required
by law or as necessary for Campbell to defend himself in any civil, criminal,
administrative, judicial, arbitral or administrative proceeding; provided that
Campbell may comment about his work experience with the Company in connection
with bona fide efforts at seeking employment, but in such event, will not
disparage the Company in any way. Florsheim agrees that no current member of the
Board of Directors will publically disparage or call into question the
performance of Campbell and that any report on Campbell regarding the
allegations of Kathleen Cavanaugh will be maintained in confidence. For these
purposes, public
<PAGE> 5
means situations in which non-officers of Florsheim are present. This does not
prevent any disclosures as required by law or necessary to the possible sale of
the business, such as information necessary for disclosure to potential
purchasers, or as necessary to the Company's lending institutions. The parties
have agreed on the terms of the press release announcing Campbell's departure
from Florsheim.
9. CONFIDENTIALITY. The parties acknowledge that the absolute
confidentiality of this Agreement is of utmost importance to the parties. Except
as may be required by law, neither Campbell, nor his attorney, nor any person
acting by, through, or in concert with him, nor the Company, shall directly or
indirectly, publish, disseminate, disclose, or cause or permit to be published,
disseminated, or disclosed to any individual or entity, any information relating
to the content of this Agreement or the circumstances and discussions that led
up to it, including, without limitation, the fact or amount of payment provided
herein. The provisions of this paragraph shall also apply to members of
Campbell's immediate family, their attorneys and any person acting as their
agent. If asked, the parties may respond that the matter has been resolved
amicably. This paragraph shall not be construed, however, to prevent the Company
from disclosing and/or discussing this Agreement or its terms with individuals
within its respective organization as deemed necessary by the Company or as
otherwise required by law. This paragraph further shall not be construed to
prevent you from disclosing information to any attorney, accountant or tax
advisor with whom you may consult for the purpose of obtaining professional
advice or services, or to any governmental taxing authority, or to members of
your immediate family; provided, however, that prior to disclosing any such
information, you shall advise any such person to whom they intend to disclose
the information (other than taxing authorities) that such information is
confidential and may not be disclosed by such person, except in response to
subpoena or judicial order. You specifically covenant that you have not and will
never review, discuss or disclose, either orally or in writing, this Agreement
or any of its terms with any current or former employee of the Company.
Should you be found by a court of competent jurisdiction to have
violated the agreements made herein with respect to disparagement or
confidentiality, you will forfeit any remaining payments under this Agreement
and hereby consent to the entry of an award of liquidated damages in the amount
of $100,000. Further, in the event that either party should prevail in a lawsuit
brought to enforce the confidentiality provisions of this Agreement, the
prevailing party shall be entitled to an award of reasonable attorneys' fees.
10. SALE OF FLORSHEIM STOCK. You acknowledge and agree that from
the date of this Agreement through August 20, 1999 or such earlier date that is
at least two (2) business days following the public release and disclosure of
Florsheim's financial information for the period ending July 3, 1999, you shall
not purchase, transfer, dispose or sell securities (or options) of Florsheim,
directly or indirectly, including, without limitation, by reducing risk through
any purchase or sale of any derivative security (or options) without the prior
disclosure to, and consent of , the designated legal representative of
Florsheim, which consent shall not unreasonably be withheld.
11. FULL DISCLOSURE BY CAMPBELL. You acknowledge and represent
that, to the best of your knowledge, you have fully disclosed to Florsheim any
and all actions by you during your
<PAGE> 6
employment with Florsheim that could create liability for Florsheim other than
authorized actions you may have taken in the normal course of conducting your
duties as Chief Executive Officer. In the event that Florsheim becomes aware of
such conduct, not previously disclosed, then Florsheim retains all rights to
assert claims against you, including the right to institute legal action or to
assert claims of indemnification, notwithstanding the provisions of this
agreement. Further, should Campbell have made a material misrepresentation or
omission or Florsheim be required to defend or institute litigation as a result
of such undisclosed information, Florsheim will have the right to cease any
remaining payments otherwise due under this agreement.
12. ENFORCEMENT. Each of the parties reserves the right to
initiate and pursue any legal action necessary to enforce the terms of this
Agreement. In the event of any legal action or proceeding to enforce the terms
of this Agreement, the prevailing party shall be entitled to recover from the
losing party, in addition to any and all other relief awarded or recovered, its
reasonable expenses, attorneys' fees and costs.
13. WAIVER OF EMPLOYMENT AND REEMPLOYMENT RIGHTS. Effective with
the execution of this agreement, you will have resigned all your positions as
director or officer of Florsheim and each of its subsidiaries and you hereby
confirm such resignation and agree that you have no further responsibility or
authority to act on behalf of Florsheim after that date. You further agree to
waive any right or claim you may have to employment or reemployment with
Florsheim. You further agree that you will not in the future seek employment or
any agency relationship with Florsheim, either as an employee or on any other
basis.
14. TIME TO REVIEW AND REVOKE. You acknowledge that you have been
given at least 21 days to consider this Agreement and have taken as much time as
necessary to consider it before signing. You further agree and understands that
you may revoke this Agreement within seven (7) days after execution and that the
Agreement will not become enforceable until eight (8) days after the date on
which you sign below. Any revocation must be in writing and must be delivered by
certified mail on or before the end of the seventh day after which you sign this
Agreement to Florsheim's attorney, J. Stephen Poor, Seyfarth, Shaw, Fairweather
& Geraldson, 55 East Monroe Street, Suite 4200, Chicago, IL 60603.
<PAGE> 7
15. ENTIRE AGREEMENT/SEVERABILITY. This Agreement sets forth the
entire agreement between you and the Company and supersedes any other written or
oral understandings. You and the Company agree that if any provision of this
Agreement or application thereof is held to be invalid, the invalidity shall not
affect other provisions or applications of this Agreement. Should the payment
terms set forth in paragraph 1 above not be met, you will notify Florsheim, by
writing to its counsel, of the failure to receive payment. Florsheim will be
provided fourteen (14) days in which to cure such deficiency. Should Florsheim
not make the required payment, you may either declare this Agreement null and
void or choose to enforce the Agreement.
16. FULL KNOWLEDGE, CONSENT AND VOLUNTARY SIGNING OF AGREEMENT.
You agree and acknowledge that you have had sufficient time to consult with your
attorney, to fully consider this entire agreement and all of its consequences,
and that you have in fact, consulted with your attorney and fully considered
this agreement and its consequences prior to signing below. You acknowledge and
agree that : (A) you carefully read this Agreement and fully understand its
meaning, intent and terms; (B) you have full knowledge of its legal
consequences; (C) you agree to all the terms of the Agreement and are
voluntarily signing below; (D) other than as stated in this Agreement, no
promise or inducement has been offered for this Agreement; and (E) you are
legally competent to execute this Agreement and accept full responsibility for
it.
ACKNOWLEDGMENT BY EMPLOYEE: By signing this Agreement I acknowledge
that the benefits that I will receive are in exchange for a release of all
claims that I have against the Company and an agreement not to sue the Company.
I understand that if I sign this agreement and then choose to sue the Company on
any ground covered by the Agreement, I will be required to return the payments
set forth in Paragraph 1 less $10.00 and all obligations on behalf of the
Company with respect to payments not yet tendered shall be extinguished. I
further understand that if I sue the Company and do not return the entire
amount, I will be deemed to have ratified this Agreement, regardless of any
alleged or actual invalidities in this Agreement, and the Company will be
entitled to judgment in its favor
/s/ Charles J. Campbell 6/22/99
- ------------------------------ ----------------------
Charles J. Campbell Date:
The Florsheim Group, Inc
By: /s/ Joshua J. Harris 6/22/99
- ------------------------------- ----------------------
Date:
<PAGE> 1
EXHIBIT 10.14
FLORSHEIM GROUP, INC.
EMPLOYMENT SECURITY AGREEMENT
This Employment Security Agreement (the "Agreement") is entered into as
of this 13th day of December, 1999, by and between Florsheim Group, Inc., a
Delaware corporation (the "Employer"), and Richard Anglin (the "Executive").
WITNESSETH
WHEREAS, the Executive is currently employed by the Employer as its
Executive Vice-President and Chief Financial Officer;
WHEREAS, the Employer desires to attract and retain well-qualified
executives and key personnel and to provide the security of continuity of
management to both itself and the Executive; and
WHEREAS, the Executive and the Employer desire to enter into this
Agreement, which sets forth the terms of the security the Employer is providing
the Executive with respect to his employment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement the following
definitions shall apply:
(a) "Aggregate Compensation" means the sum of the Executive's (i)
Base Pay and (ii) Bonus.
(b) "Base Pay" means the Executive's annual base salary rate.
(c) "Bonus" means the average annual incentive payment made to the
Executive for the immediately preceding two full fiscal years of the Employer.
(d) "Effective Date" means the date of this Agreement as set forth
above.
<PAGE> 2
(e) "Cause" means:
(1) The Board of Directors, in its reasonable discretion,
concludes that the Executive has willfully failed to follow
directions communicated to him by either an officer of the
Employer to whom the Executive directly or indirectly
reports or the Board of Directors;
(2) The Executive willfully engages in conduct that is
materially injurious to the Employer, monetarily or
otherwise;
(3) The Executive is convicted of, pleads nolo contendere to,
pleads guilty to or confesses to an act of fraud,
misappropriation or embezzlement or any felony;
(4) The Board of Directors, in its reasonable discretion,
determinates that the Executive is either habitually drunk
or using illegal substances;
(5) The Executive violates the Employer's sexual harassment
policy; or
(6) The Executive commits an act of gross neglect or gross
misconduct which the Board of Directors, in its reasonable
discretion, determines is deemed to be good and sufficient
cause.
(f) "Good Reason" means:
(1) There is a material reduction in the Executive's Aggregate
Compensation from one fiscal year to the next;
(2) There is a material reduction in the Executive's Medical
Plan, Retirement Plans, or Welfare Plans; or
(3) There is a material reduction in the Executive's
responsibilities.
(g) "Medical Plan" means any health and major medical plan currently
or hereafter made available by the Employer in which the Executive is eligible
to participate.
(h) "Retirement Plans" means any qualified or supplemental defined
benefit retirement plan or defined contribution retirement plan currently or
hereinafter made available by the Employer in which the Executive is eligible to
participate, or any private retirement arrangement maintained by the Employer
solely for the Executive.
<PAGE> 3
(i) "Severance Period" means the period beginning on the date the
Executive's employment with the Employer terminates under circumstances
described in Section 3 and ending on the date that is 18 months thereafter.
(j) "Welfare Plan" means any vision or dental plan, disability plan,
survivor income plan or life insurance plan or other arrangement currently or
hereafter made available by the Employer in which the Executive is eligible to
participate.
2. TERM. The term of this Agreement (the "Term") shall be the period
beginning on the Effective Date and terminating the date that (i) is 18 months
after the date of the Executive's termination of employment under circumstances
described in Section 3, (ii) the Executive's employment is terminated for Cause,
or (iii) the Executive terminates his employment with the Employer without Good
Reason.
3. BENEFITS UPON TERMINATION OF EMPLOYMENT. If, at any time on or
after the Effective Date (i) the employment of the Executive with the Employer
is terminated by the Employer (or any successor to the Employer) for any reason
other than Cause, or (ii) the Executive terminates his employment with the
Employer for Good Reason, the following provisions will apply:
(a) The Employer shall pay the Executive, during the Severance
Period, an aggregate amount equal to one and one-half times the sum of the
Executive's (i) Base Pay at the highest rate in effect during the Term and (ii)
Bonus. Such amount shall be paid in substantially equal monthly installments
over the Severance Period. The first of such payments will commence as soon as
practicable following the date of the Executive's termination of employment.
(b) For purposes of all Retirement Plans (to the extent permissible
thereunder), the Executive shall be given compensation credit and service credit
for all purposes for, and shall be deemed to be an employee of the Employer
during, the Severance Period, notwithstanding that he is not an employee of the
Employer during the Severance Period.
(c) During the Severance Period, the Executive and his spouse and
other dependents will continue to be covered by the Medical Plan and all Welfare
Plans maintained by the Employer in which the Executive or spouse or dependents
were participating immediately before the date of the Executive's termination as
if the Executive continued to be an employee of the Employer. If, however, the
Executive obtains employment with another employer during the Severance Period,
such Medical Plan coverage shall cease for the Executive and his spouse and
other dependents. This Section 3(c) is not intended to impair the Executive's
rights as otherwise provided by law (e.g. rights under Section 4980B of the
Internal Revenue Code).
(d) The Executive shall be entitled to a payment attributable to
compensation for unused vacation periods accrued as of the date of his
termination of employment. The Executive shall not be entitled to payment for
vacation periods that would have accrued had his employment
<PAGE> 4
continued during the Severance Period. Payment for accrued vacation shall be
made to the Executive in a lump sum within 10 days following the date of the
Executive's termination of employment. This Section 3(d) is not intended to
impair the Executive's right to receive payment for accrued vacation as
otherwise provided by law.
4. DEATH. If the Executive dies during the Severance Period, the
following rules shall apply:
(a) All amounts payable hereunder to the Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse or other
beneficiary designated in writing by the Executive. On the death of the survivor
of the Executive and his spouse or other beneficiary, payments shall be made to
the Executive's estate.
(b) During the remainder of the Severance Period, the Executive's
spouse and dependents, if any, shall be covered under the Medical Plan and
Welfare Plans made available by the Employer to the Executive or his spouse or
dependents immediately before the date of the Executive's death.
Any benefits payable under this Section 4 are in addition to any other
death benefits due to the Executive or his spouse or other beneficiaries or
dependents from the Employer, including, but not limited to, payments under any
of the Retirement Plans.
5. TERMINATION FOR CAUSE OR WITHOUT GOOD REASON. If the Executive's
employment with the Employer is terminated by the Employer for Cause or by the
voluntary action of the Executive without Good Reason, the Executive's Base Pay
in effect on the date of termination shall be paid through the date of
termination, and the Employer shall have no further obligation to the Executive
or his spouse or other beneficiary under this Agreement, except for payments or
benefits under the terms of any compensation or benefits plans or arrangements,
including any Retirement Plans, Medical Plan and Welfare Plans.
<PAGE> 5
6. MITIGATION. The Executive shall not have a duty to mitigate
damages.
7. RESTRICTIVE COVENANTS. The Executive shall be precluded from
working with competitor companies for the Term.
8. CONFIDENTIALITY. The Executive shall preserve the confidentiality
of this Agreement and its terms and conditions during the Term and thereafter.
If the Executive breaches the confidentiality of this Agreement and its terms
and conditions, the Executive will be liable to the Employer for its actual
damages and may be subject to injunctive relief. In case of any such breach, the
Employer may seek injunctive relief.
9. APPLICABLE LAW. This Agreement shall be subject to, construed
and interpreted pursuant to the laws of the State of Illinois without giving
effect to the choice of law provisions thereof.
10. ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the Employer and the Executive and supersedes any and all previous
agreements, written or oral, among the parties relating to the subject matter
hereof. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by the
Employer and the Executive.
11. NO EMPLOYMENT CONTRACT. Nothing contained in this Agreement shall
be construed to be an employment contract between the Executive and the
Employer. The Executive is employed at will, and (subject to the payments to be
made and the benefits to be provided by the Employer to the Executive hereunder)
the Employer may terminate the Executive's employment at any time, with or
without cause.
12. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives
and successors.
RICHARD ANGLIN FLORSHEIM GROUP, INC.
Richard Anglin By: L. David Sanguinetti
- -------------- --------------------
Executive Vice-President and
Chief Financial Officer
Name: L. David Sanguinetti
--------------------
Its: Executive Vice President/COO
----------------------------
<PAGE> 1
EXHIBIT 10.15
FLORSHEIM GROUP, INC.
EMPLOYMENT SECURITY AGREEMENT
This Employment Security Agreement (the "Agreement") is entered into as
of this 13th day of December, 1999, by and between Florsheim Group, Inc., a
Delaware corporation (the "Employer"), and Thomas W. Joseph (the "Executive").
WITNESSETH
WHEREAS, the Executive is currently employed by the Employer as its
Senior Vice President, President International Division;
WHEREAS, the Employer desires to attract and retain well-qualified
executives and key personnel and to provide the security of continuity of
management to both itself and the Executive; and
WHEREAS, the Executive and the Employer desire to enter into this
Agreement, which sets forth the terms of the security the Employer is providing
the Executive with respect to his employment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement the following
definitions shall apply:
(a) "Aggregate Compensation" means the sum of the Executive's (i)
Base Pay and (ii) Bonus.
(b) "Base Pay" means the Executive's annual base salary rate.
(c) "Bonus" means the average annual incentive payment made to the
Executive for the immediately preceding two full fiscal years of the Employer.
(d) "Effective Date" means the date of this Agreement as set forth
above.
<PAGE> 2
(e) "Cause" means:
(1) The Board of Directors, in its reasonable discretion,
concludes that the Executive has willfully failed to follow
directions communicated to him by either an officer of the
Employer to whom the Executive directly or indirectly
reports or the Board of Directors;
(2) The Executive willfully engages in conduct that is
materially injurious to the Employer, monetarily or
otherwise;
(3) The Executive is convicted of, pleads nolo contendere to,
pleads guilty to or confesses to an act of fraud,
misappropriation or embezzlement or any felony;
(4) The Board of Directors, in its reasonable discretion,
determinates that the Executive is either habitually drunk
or using illegal substances;
(5) The Executive violates the Employer's sexual harassment
policy; or
(6) The Executive commits an act of gross neglect or gross
misconduct which the Board of Directors, in its reasonable
discretion, determines is deemed to be good and sufficient
cause.
(f) "Good Reason" means:
(1) There is a material reduction in the Executive's Aggregate
Compensation from one fiscal year to the next;
(2) There is a material reduction in the Executive's Medical
Plan, Retirement Plans, or Welfare Plans; or
(3) There is a material reduction in the Executive's
responsibilities.
(g) "Medical Plan" means any health and major medical plan currently
or hereafter made available by the Employer in which the Executive is eligible
to participate.
(h) "Retirement Plans" means any qualified or supplemental defined
benefit retirement plan or defined contribution retirement plan currently or
hereinafter made available by the Employer in which the Executive is eligible to
participate, or any private retirement arrangement maintained by the Employer
solely for the Executive.
<PAGE> 3
(i) "Severance Period" means the period beginning on the date the
Executive's employment with the Employer terminates under circumstances
described in Section 3 and ending on the date that is 12 months thereafter.
(j) "Welfare Plan" means any vision or dental plan, disability plan,
survivor income plan or life insurance plan or other arrangement currently or
hereafter made available by the Employer in which the Executive is eligible to
participate.
2. TERM. The term of this Agreement (the "Term") shall be the period
beginning on the Effective Date and terminating the date that (i) is 12 months
after the date of the Executive's termination of employment under circumstances
described in Section 3, (ii) the Executive's employment is terminated for Cause,
or (iii) the Executive terminates his employment with the Employer without Good
Reason.
3. BENEFITS UPON TERMINATION OF EMPLOYMENT. If, at any time on or
after the Effective Date (i) the employment of the Executive with the Employer
is terminated by the Employer (or any successor to the Employer) for any reason
other than Cause, or (ii) the Executive terminates his employment with the
Employer for Good Reason, the following provisions will apply:
(a) The Employer shall pay the Executive, during the Severance
Period, an aggregate amount equal to one times the sum of the Executive's (i)
Base Pay at the highest rate in effect during the Term and (ii) Bonus. Such
amount shall be paid in substantially equal monthly installments over the
Severance Period. The first of such payments will commence as soon as
practicable following the date of the Executive's termination of employment.
(b) For purposes of all Retirement Plans (to the extent permissible
thereunder), the Executive shall be given compensation credit and service credit
for all purposes for, and shall be deemed to be an employee of the Employer
during, the Severance Period, notwithstanding that he is not an employee of the
Employer during the Severance Period.
(c) During the Severance Period, the Executive and his spouse and
other dependents will continue to be covered by the Medical Plan and all Welfare
Plans maintained by the Employer in which the Executive or spouse or dependents
were participating immediately before the date of the Executive's termination as
if the Executive continued to be an employee of the Employer. If, however, the
Executive obtains employment with another employer during the Severance Period,
such Medical Plan coverage shall cease for the Executive and his spouse and
other dependents. This Section 3(c) is not intended to impair the Executive's
rights as otherwise provided by law (e.g. rights under Section 4980B of the
Internal Revenue Code).
(d) The Executive shall be entitled to a payment attributable to
compensation for unused vacation periods accrued as of the date of his
termination of employment. The Executive shall not be entitled to payment for
vacation periods that would have accrued had his employment
<PAGE> 4
continued during the Severance Period. Payment for accrued vacation shall be
made to the Executive in a lump sum within 10 days following the date of the
Executive's termination of employment. This Section 3(d) is not intended to
impair the Executive's right to receive payment for accrued vacation as
otherwise provided by law.
4. DEATH. If the Executive dies during the Severance Period, the
following rules shall apply:
(a) All amounts payable hereunder to the Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse or other
beneficiary designated in writing by the Executive. On the death of the survivor
of the Executive and his spouse or other beneficiary, payments shall be made to
the Executive's estate.
(b) During the remainder of the Severance Period, the Executive's
spouse and dependents, if any, shall be covered under the Medical Plan and
Welfare Plans made available by the Employer to the Executive or his spouse or
dependents immediately before the date of the Executive's death.
Any benefits payable under this Section 4 are in addition to any other
death benefits due to the Executive or his spouse or other beneficiaries or
dependents from the Employer, including, but not limited to, payments under any
of the Retirement Plans.
5. TERMINATION FOR CAUSE OR WITHOUT GOOD REASON. If the Executive's
employment with the Employer is terminated by the Employer for Cause or by the
voluntary action of the Executive without Good Reason, the Executive's Base Pay
in effect on the date of termination shall be paid through the date of
termination, and the Employer shall have no further obligation to the Executive
or his spouse or other beneficiary under this Agreement, except for payments or
benefits under the terms of any compensation or benefits plans or arrangements,
including any Retirement Plans, Medical Plan and Welfare Plans.
<PAGE> 5
6. MITIGATION. The Executive shall not have a duty to mitigate
damages.
7. RESTRICTIVE COVENANTS. The Executive shall be precluded from
working with any competitor companies for the Term.
8. CONFIDENTIALITY. The Executive shall preserve the confidentiality
of this Agreement and its terms and conditions during the Term and thereafter.
If the Executive breaches the confidentiality of this Agreement and its terms
and conditions, the Executive will be liable to the Employer for its actual
damages and may be subject to injunctive relief. In case of any such breach, the
Employer may seek injunctive relief.
9. APPLICABLE LAW. This Agreement shall be subject to, construed
and interpreted pursuant to the laws of the State of Illinois without giving
effect to the choice of law provisions thereof.
10. ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the Employer and the Executive and supersedes any and all previous
agreements, written or oral, among the parties relating to the subject matter
hereof. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by the
Employer and the Executive.
11. NO EMPLOYMENT CONTRACT. Nothing contained in this Agreement shall
be construed to be an employment contract between the Executive and the
Employer. The Executive is employed at will, and (subject to the payments to be
made and the benefits to be provided by the Employer to the Executive hereunder)
the Employer may terminate the Executive's employment at any time, with or
without cause.
12. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives
and successors.
THOMAS W. JOSEPH FLORSHEIM GROUP, INC.
Thomas W. Joseph By: L. David Sanguinetti
- ---------------- --------------------
Senior Vice President,
President International Division Name: L. David Sanguinetti
--------------------
Its: Executive Vice President/COO
----------------------------
<PAGE> 1
EXHIBIT 10.16
FLORSHEIM GROUP, INC.
EMPLOYMENT SECURITY AGREEMENT
This Employment Security Agreement (the "Agreement") is entered into as
of this 13th day of December, 1999, by and between Florsheim Group, Inc., a
Delaware corporation (the "Employer"), and Dave Sanguinetti (the "Executive").
WITNESSETH
WHEREAS, the Executive is currently employed by the Employer as its
Executive Vice-President and Chief Operating Officer;
WHEREAS, the Employer desires to attract and retain well-qualified
executives and key personnel and to provide the security of continuity of
management to both itself and the Executive; and
WHEREAS, the Executive and the Employer desire to enter into this
Agreement, which sets forth the terms of the security the Employer is providing
the Executive with respect to his employment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement the following
definitions shall apply:
(a) "Aggregate Compensation" means the sum of the Executive's (i)
Base Pay and (ii) Bonus.
(b) "Base Pay" means the Executive's annual base salary rate.
(c) "Bonus" means the average annual incentive payment made to the
Executive for the immediately preceding two full fiscal years of the Employer.
(d) "Effective Date" means the date of this Agreement as set forth
above.
<PAGE> 2
(e) "Cause" means:
(1) The Board of Directors, in its reasonable discretion,
concludes that the Executive has willfully failed to follow
directions communicated to him by either an officer of the
Employer to whom the Executive directly or indirectly
reports or the Board of Directors;
(2) The Executive willfully engages in conduct that is
materially injurious to the Employer, monetarily or
otherwise;
(3) The Executive is convicted of, pleads nolo contendere to,
pleads guilty to or confesses to an act of fraud,
misappropriation or embezzlement or any felony;
(4) The Board of Directors, in its reasonable discretion,
determinates that the Executive is either habitually drunk
or using illegal substances;
(5) The Executive violates the Employer's sexual harassment
policy; or
(6) The Executive commits an act of gross neglect or gross
misconduct which the Board of Directors, in its reasonable
discretion, determines is deemed to be good and sufficient
cause.
(f) "Good Reason" means:
(1) There is a material reduction in the Executive's Aggregate
Compensation from one fiscal year to the next;
(2) There is a material reduction in the Executive's Medical
Plan, Retirement Plans, or Welfare Plans; or
(3) There is a material reduction in the Executive's
responsibilities.
(g) "Medical Plan" means any health and major medical plan currently
or hereafter made available by the Employer in which the Executive is eligible
to participate.
(h) "Retirement Plans" means any qualified or supplemental defined
benefit retirement plan or defined contribution retirement plan currently or
hereinafter made available by the Employer in which the Executive is eligible to
participate, or any private retirement arrangement maintained by the Employer
solely for the Executive.
<PAGE> 3
(i) "Severance Period" means the period beginning on the date the
Executive's employment with the Employer terminates under circumstances
described in Section 3 and ending on the date that is 18 months thereafter.
(j) "Welfare Plan" means any vision or dental plan, disability plan,
survivor income plan or life insurance plan or other arrangement currently or
hereafter made available by the Employer in which the Executive is eligible to
participate.
2. TERM. The term of this Agreement (the "Term") shall be the period
beginning on the Effective Date and terminating the date that (i) is 18 months
after the date of the Executive's termination of employment under circumstances
described in Section 3, (ii) the Executive's employment is terminated for Cause,
or (iii) the Executive terminates his employment with the Employer without Good
Reason.
3. BENEFITS UPON TERMINATION OF EMPLOYMENT. If, at any time on or
after the Effective Date (i) the employment of the Executive with the Employer
is terminated by the Employer (or any successor to the Employer) for any reason
other than Cause, or (ii) the Executive terminates his employment with the
Employer for Good Reason, the following provisions will apply:
(a) The Employer shall pay the Executive, during the Severance
Period, an aggregate amount equal to one and one-half times the sum of the
Executive's (i) Base Pay at the highest rate in effect during the Term and (ii)
Bonus. Such amount shall be paid in substantially equal monthly installments
over the Severance Period. The first of such payments will commence as soon as
practicable following the date of the Executive's termination of employment.
(b) For purposes of all Retirement Plans (to the extent permissible
thereunder), the Executive shall be given compensation credit and service credit
for all purposes for, and shall be deemed to be an employee of the Employer
during, the Severance Period, notwithstanding that he is not an employee of the
Employer during the Severance Period.
(c) During the Severance Period, the Executive and his spouse and
other dependents will continue to be covered by the Medical Plan and all Welfare
Plans maintained by the Employer in which the Executive or spouse or dependents
were participating immediately before the date of the Executive's termination as
if the Executive continued to be an employee of the Employer. If, however, the
Executive obtains employment with another employer during the Severance Period,
such Medical Plan coverage shall cease for the Executive and his spouse and
other dependents. This Section 3(c) is not intended to impair the Executive's
rights as otherwise provided by law (e.g. rights under Section 4980B of the
Internal Revenue Code).
(d) The Executive shall be entitled to a payment attributable to
compensation for unused vacation periods accrued as of the date of his
termination of employment. The Executive shall not be entitled to payment for
vacation periods that would have accrued had his employment
<PAGE> 4
continued during the Severance Period. Payment for accrued vacation shall be
made to the Executive in a lump sum within 10 days following the date of the
Executive's termination of employment. This Section 3(d) is not intended to
impair the Executive's right to receive payment for accrued vacation as
otherwise provided by law.
4. DEATH. If the Executive dies during the Severance Period, the
following rules shall apply:
(a) All amounts payable hereunder to the Executive shall, during the
remainder of the Severance Period, be paid to his surviving spouse or other
beneficiary designated in writing by the Executive. On the death of the survivor
of the Executive and his spouse or other beneficiary, payments shall be made to
the Executive's estate.
(b) During the remainder of the Severance Period, the Executive's
spouse and dependents, if any, shall be covered under the Medical Plan and
Welfare Plans made available by the Employer to the Executive or his spouse or
dependents immediately before the date of the Executive's death.
Any benefits payable under this Section 4 are in addition to any other
death benefits due to the Executive or his spouse or other beneficiaries or
dependents from the Employer, including, but not limited to, payments under any
of the Retirement Plans.
5. TERMINATION FOR CAUSE OR WITHOUT GOOD REASON. If the Executive's
employment with the Employer is terminated by the Employer for Cause or by the
voluntary action of the Executive without Good Reason, the Executive's Base Pay
in effect on the date of termination shall be paid through the date of
termination, and the Employer shall have no further obligation to the Executive
or his spouse or other beneficiary under this Agreement, except for payments or
benefits under the terms of any compensation or benefits plans or arrangements,
including any Retirement Plans, Medical Plan and Welfare Plans.
6. MITIGATION. The Executive shall not have a duty to mitigate
damages.
7. RESTRICTIVE COVENANTS. The Executive shall be precluded from
working with any competitor companies for the Term.
8. CONFIDENTIALITY. The Executive shall preserve the confidentiality
of this Agreement and its terms and conditions during the Term and thereafter.
If the Executive breaches the confidentiality of this Agreement and its terms
and conditions, the Executive will be liable to the Employer for its actual
damages and may be subject to injunctive relief. In case of any such breach, the
Employer may seek injunctive relief.
<PAGE> 5
9. APPLICABLE LAW. This Agreement shall be subject to, construed
and interpreted pursuant to the laws of the State of Illinois without giving
effect to the choice of law provisions thereof.
10. ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the Employer and the Executive and supersedes any and all previous
agreements, written or oral, among the parties relating to the subject matter
hereof. No amendment or modification of the terms of this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by the
Employer and the Executive.
11. NO EMPLOYMENT CONTRACT. Nothing contained in this Agreement shall
be construed to be an employment contract between the Executive and the
Employer. The Executive is employed at will, and (subject to the payments to be
made and the benefits to be provided by the Employer to the Executive hereunder)
the Employer may terminate the Executive's employment at any time, with or
without cause.
12. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives
and successors.
DAVE SANGUINETTI FLORSHEIM GROUP, INC.
L. David Sanguinetti By: R. Anglin
- -------------------- ---------
Executive Vice-President and
Chief Operating Officer
Name: Richard J. Anglin
-----------------
Its: Executive Vice President/CFO
----------------------------
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "this Agreement") is made this
23rd day of March 2000, between Florsheim Group Inc. (hereinafter "the Company")
and Mr. Peter Corritori (hereinafter "Corritori").
WITNESSETH:
WHEREAS, the Company desires to employ Corritori as its Chief Executive
Officer, and Corritori desires to be so employed by the Company, on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements herein set forth, the Company and Corritori hereby
agree as follows:
1. Employment. The Company hereby agrees to employ Corritori, and
Corritori hereby agrees to serve, as Chief Executive Officer of the Company. In
addition, Corritori shall serve as a director and Chairman of the Company's
Board of Directors. Corritori agrees to perform diligently and faithfully such
services customary to such office as shall from time to time be reasonably
assigned to him by the Company's Board of Directors. Corritori further agrees to
use his reasonable best efforts to promote the interests of the Company and to
devote substantially all of his full business time and energies to the business
and affairs of the Company.
2. Term of Employment. The employment hereunder shall be for a term
of three (3) years commencing on the date hereof (the "Effective Date") and
ending on the day
<PAGE> 2
immediately preceding the third anniversary of the Effective Date (the
"Expiration Date"), unless terminated earlier pursuant to Paragraph 5 of this
Agreement (the "Term of Employment"). Beginning on the first anniversary of the
Effective Date and on each anniversary date thereafter (each, an "Anniversary
Date"), this Agreement shall automatically be renewed for a term of one (1) year
unless such renewal is objected to by either the Company or Corritori ninety
(90) days prior to an Anniversary Date.
3. Corritori's Representations. Corritori represents that he is not
bound by any agreement, including, without limitation, the Letter Agreement
dated December 29, 1999, between Corritori and Phillips-Van Heusen (the "PVH
Agreement") that would prohibit Corritori from entering into this Agreement or
performing fully his duties hereunder. Corritori further represents that the
execution of this Agreement shall not constitute a breach of any other agreement
to which Corritori is a party, including, without limitation, the PVH Agreement.
Corritori shall indemnify and hold the Company harmless against all losses,
damages, liabilities, causes of action (including reasonable attorneys' fees)
resulting from Corritori's breach of the representations set forth herein.
4. Compensation and Other Related Matters.
(a) Salary. As compensation for services rendered hereunder,
Corritori shall receive an annual base salary (the "Annual Base Salary") in the
amount of Four Hundred Eighty-Five Thousand dollars ($485,000.00), which salary
shall be paid in accordance with the Company's then prevailing payroll
practices. Corritori's Annual Base Salary shall be reviewed and increased solely
in the discretion of the Company's Compensation Committee.
(b) Bonus. During the Term of Employment, at the end of each
fiscal
<PAGE> 3
year, Corritori shall receive an annual bonus in the amount of 75% of his Annual
Base Salary upon the Company's achievement of budget, such budget objectives to
be determined by the Company's Compensation Committee in its sole discretion
exercised in good-faith, after consultation with management. Within sixty (60)
days from the date hereof, Corritori and the Company's Compensation Committee
shall mutually agree on a budget for the fiscal year 2000 which budget shall
provide for revenues and EBITDA in excess of those achieved in the 1999 fiscal
year. If a change of control (as hereinafter defined) occurs during the first
year of this Agreement, the entire bonus target for the year shall be paid. The
annual bonus shall be paid in accordance with the Company's existing practices.
In the event that this Agreement expires during any portion of a fiscal year,
Corritori shall be entitled to receive a pro-rated bonus for the fiscal year in
which such expiration occurs provided that the Company achieves budget for such
fiscal year.
(c) Benefits. The fringe benefits, perquisites and other benefits
of employment to be provided to the Executive shall be equivalent to such
benefits and perquisites as are provided to other senior executives of the
Company as amended from time to time.
(d) Housing. The Company shall provide Corritori with a
two-bedroom apartment in Chicago, Illinois for the shorter of (i) the first
twenty-four months of this Agreement (the "Initial Period") or (ii) until
Corritori relocates to the Chicago area. In the event that the Company is
actively being offered for sale or there has been a Change in Control prior to
the expiration of the Initial Period, Corritori shall not be required to
relocate to Chicago until such time as the Company is no longer for sale,
provided there has been no Change in Control.
(e) Commuting Expenses. The Company shall pay all reasonable
<PAGE> 4
commuting expenses between Chicago and New York for the shorter of: (i) the
Initial Period; or (ii) until Corritori relocates to the Chicago area. In the
event that the Company is actively being offered for sale or there has been a
Change in Control prior to the expiration of the Initial Period, the Company
shall continue to provide Corritori with reasonable commuting expenses until
such time as the Company is no longer for sale provided that there has been no
Change in Control.
(f) Relocation Expenses. The Company will pay reasonable moving
expenses for the relocation of Corritori and his family to the Chicago, Illinois
vicinity, including the closing costs associated with the sale of Corritori's
existing home and his purchase of a new home. In addition, the Company shall
reimburse Corritori for the cost of one trip for his wife in connection with
Corritori's relocation.
(g) Business Expenses and Travel. During the Term of Employment,
Corritori shall be entitled to reimbursement from the Company for all reasonable
expenses incurred by him in performing his services hereunder, provided that
such expenses are incurred and accounted for in accordance with Company policy.
(h) Disability Insurance. During the Term of Employment, the
Company shall provide Corritori with a disability insurance plan with a premium
of $5,000 per year.
(i) Legal Fees. The Company shall reimburse Corritori for the
legal fees incurred in connection with this Agreement in the maximum amount of
$5,000.
(j) Equity Interest. Prior to July 31, 2000, Corritori shall
purchase in the open market the lesser of (i) 75,000 shares of Common Stock of
the Company; and (ii) those number of shares of the Company's Common Stock that
have an aggregate purchase price of
<PAGE> 5
$250,000. In addition, upon the execution of this Agreement, Corritori shall
receive the option to purchase an additional 275,000 shares of the Company's
common stock as follows:
(a) 91,666 shares at Market;
(b) 91,667 shares at an exercise price of $5.00 per share; and
(c) 91,667 shares at an exercise price of $7.50 per share.
Each tranche of options set forth above shall vest and shall become exercisable
in accordance with the Company's Stock Option Plan as detailed below:
Anniversary Date % of Each Tranche to Vest
---------------- -------------------------
First 25%
Second 25%
Third 50%
For purposes hereof, "Market" shall mean the five (5) day moving average prior
to the Effective Date.
In the event of a Change in Control, all of Corritori's
outstanding but unvested options will become immediately vested and exercisable.
For purposes hereof Change in Control shall mean:
(i) The acquisition (other than (i) from the Company or (ii)
by Apollo (as hereinafter defined)) by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act, excluding, for this
purpose, the Company or its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries, of beneficial ownership (within the meaning of Rule
17d-3 promulgated under the 1934 Act) of 50% or more of either the then
outstanding shares or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors.; or
<PAGE> 6
(ii) Individuals who, as of the Effective Date constitute
the Board (as of such date, the "Incumbent Board"), cease to constitute at least
a majority of the Board as a result of an actual or threatened election contest
relating to the election of the directors of the Company, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act (a "Proxy
Vote"); provided, that any person becoming a director subsequent to the first
anniversary of the Effective Date whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than as a result of a Proxy
Vote) shall be considered as though such person were a member of the Incumbent
Board; or
(iii) Approval by the stockholders of the Company of a (i)
reorganization, merger or consolidation, in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own,
directly or indirectly, more than 50% of the combined voting power entitled to
vote generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or (ii) a liquidation
or dissolution of the Company or the sale of all or substantially all of the
assets of the Company, and as a result of any of the transactions listed above,
Apollo ceases to be the largest shareholder of the Company, in each case, unless
the transaction was approved by a majority of the directors then comprising the
Incumbent Board.
For purposes of the definition of "Change of Control", the term
"Apollo" shall mean Apollo Advisors, L.P., Lion Advisors, L.P., Artemis America
Partnership and any entity that controls, is controlled by or is under common
control with Apollo Advisors, L.P. Lion
<PAGE> 7
Advisors, L.P., and Artemis America Partnership, including accounts under common
management.
5. Termination.
(a) Disability. If, as a result of the incapacity of Corritori
due to physical or mental illness, Corritori is unable to perform substantially
and continuously the duties assigned to him hereunder, for a period of three (3)
consecutive months or for a non-consecutive period of nine (9) months during the
Term of Employment, the Company may terminate his employment for "Disability"
upon thirty (30) days prior written notice to Corritori.
(b) Death. Corritori's employment shall terminate immediately
upon the death of Corritori.
(c) Cause. The Company shall be entitled to terminate
Corritori's employment for "Cause." Termination by the Company of the employment
of Corritori for "Cause" shall mean termination based upon (i) the willful
failure by Corritori to follow lawful directions communicated to him by the
Company's Board of Directors; (ii) the engaging by Corritori in conduct which is
materially injurious to the Company, monetarily or otherwise; (iii) a conviction
of, a plea of nolo contendere, a plea or confession by Corritori to, or
commission of an act involving, an act of fraud, misappropriation or
embezzlement or to a felony; (iv) Corritori's habitual drunkenness or use of
illegal substances; (v) a material breach by Corritori of this Agreement; (vi)
an act of gross neglect or gross misconduct which the Company deems to be good
and sufficient cause; (vii) Corritori's failure, unless on business related
travel, to perform his duties hereunder in Chicago, Illinois; or (viii)
Corritori's breach of any of the representations set forth in Paragraph 3 of
this Agreement.
<PAGE> 8
(d) Termination Without Cause. The Company shall have the right
to terminate Corritori's employment without cause at any time.
(e) Good Reason. Corritori shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, Good Reason shall
mean (i) a material breach of this Agreement by the Company; (ii) the material
reduction in Corritori's responsibilities; (iii) a reduction in Corritori's
Annual Base Salary; or (iv) a reduction in Corritori's title.
6. Compensation Upon Termination or During Disability.
(a) Disability. During any period that Corritori fails to
perform his full-time duties with the Company as a result of incapacity due to
physical or mental illness (the "Disability Period"), Corritori shall continue
to receive his Annual Base Salary at the rate set forth in Paragraph 4(a) of
this Agreement, less any compensation payable to Corritori under the applicable
disability insurance plan of the Company during such period and shall continue
to receive the comprehensive health and major medical insurance, group life
insurance and any other insurance benefits provided to Corritori hereunder until
this Agreement is terminated pursuant to Paragraph 5(a) hereof. Thereafter, or
in the event Corritori's employment shall be terminated by reason of his death,
Corritori shall be entitled to receive his pro-rated annual bonus in the year of
termination to the extent the Company achieves budget for such year and those
benefits provided under the Company's disability insurance program then in
effect in accordance with the terms of such program and the Company shall have
no further obligation to Corritori under this Agreement.
(b) Death. Upon Corritori's death, this Agreement shall
terminate
<PAGE> 9
immediately. In such event, Corritori's estate shall be entitled to his
pro-rated annual bonus in the year of his death to the extent that the Company
achieves budget for such year. Thereafter, the Company shall have no further
obligation to Corritori under this Agreement.
(c) Cause. If Corritori's employment shall be terminated by the
Company for "Cause" as defined in Paragraph 5(c) of this Agreement, the Company
shall continue to pay Corritori his Annual Base Salary at the rate set forth in
Paragraph 4(a) of this Agreement through the date of termination of Corritori's
employment. Thereafter, the Company shall have no further obligation to
Corritori under this Agreement.
(d) Termination Without Cause by the Company. If the Company
voluntarily terminates Corritori's employment with the Company pursuant to
Paragraph 5(d) of this Agreement, the Company shall pay Corritori his (i) Annual
Base Salary at the rate set forth in Paragraph 4 (a) and benefits plus (ii) his
annual bonus, to the extent the Company achieves budget in the year of
termination, for the greater of (i) two years or (ii) the duration of this
Agreement (the "Severance Period"). Other than the payments set forth in this
Paragraph 6(d), Corritori acknowledges that the Company shall have no further
obligation to him under this Agreement.
(e) Good Reason. In the event that Corritori resigns his
employment for Good Reason pursuant to Paragraph 5(e) of the Agreement, the
Company shall pay Corritori his Annual Base Salary at the rate set forth in
Paragraph 4 (a), provide benefits and pay his annual bonus to the extent that
the Company achieves budget in the year of termination through the Severance
Period. Other than the payments set forth in this Paragraph 6(e), Corritori
acknowledges that the Company shall have no further obligation to him under the
Agreement.
7. Confidentiality and Restrictive Covenants.
<PAGE> 10
(a) Corritori acknowledges that:
(i) the business in which the Company is engaged is
intensely competitive and that his employment by the Company will require that
he have access to and knowledge of confidential information of the Company,
including, but not limited to, certain/all of the Company's plans for creation,
acquisition or disposition of products, expansion plans, financial status and
plans, products, improvements, formulas, designs or styles, method of
distribution, customer lists, product development plans, rules and regulations,
personnel information and trade secrets of the Company, all of which are of
vital importance to the success of the Company's business (collectively,
"Confidential Information");
(ii) the direct or indirect disclosure of any Confidential
Information would place the Company at a serious competitive disadvantage and
would do serious damage, financial and otherwise, to the Company's business;
(iii) by his training, experience and expertise, Corritori's
services to the Company will be special and unique; and
(iv) if Corritori leaves the Company's employ to work for a
competitive business, in any capacity, it would cause the Company irreparable
harm.
(b) Covenant Against Disclosure. Corritori therefore covenants
and agrees that all Confidential Information relating to the business products
and services of the Company, any subsidiary, affiliate or customer shall be and
remain the sole property and confidential business information of the Company,
free of any rights of Corritori. Corritori further agrees not to make any use of
the confidential information except in the performance of his duties hereunder
and not to disclose the information to third parties, without the prior written
consent of
<PAGE> 11
the Company. The obligations of Corritori under this Paragraph 7 shall survive
any termination of this Agreement. Corritori agrees that, upon any termination
of his employment with the Company, all Confidential Information in his
possession, directly or indirectly, that is in written or other tangible form
(together with all duplicates thereof) will forthwith be returned to the Company
and will not be retained by Corritori or furnished to any third party, either by
sample, facsimile, film, audio or video cassette, electronic data, verbal
communication or any other means of communication.
(c) Non-competition. Corritori agrees that, during the Term of
Employment and during the Severance Period, Corritori will not, directly or
indirectly, own, manage, operate, control or participate in the ownership,
management or control of, or be connected as an officer, employee, partner,
director, consultant, or otherwise with, or have any financial interest in, or
aid or assist anyone else in the conduct of, any entity or business which
competes with any business conducted by the Company or any of its subsidiaries
or affiliates either by (i) selling similar products to customers of the
Company; (ii) selling casual or dress footwear or apparel generally; (iii)
operating similar retail operations engaged in the sale of footwear or apparel;
or (iv) otherwise competing in a competitive business, in any area where such
business is being conducted on the date Corritori's employment is terminated
hereunder. Notwithstanding the foregoing, in the event that Corritori's
employment is terminated for cause pursuant to Paragraph 5(c) of this Agreement
by Corritori for Good Reason pursuant to Paragraph 5(e) of this Agreement or
Corritori resigns his employment without Good Reason, Corritori shall not engage
in any of the activities set forth in this Paragraph 7(c) for a period of two
(2) years following the termination of his employment. Notwithstanding the
foregoing, in the
<PAGE> 12
event of (i) a Change in Control; and (ii) Corritori's
employment is terminated without cause or for Good Reason within eighteen (18)
months of the date of the Change in Control, Corritori shall be entitled to
compete in the apparel business. Corritori's ownership of securities of a public
company engaged in competition with the Company not in excess of five (5)
percent of any class of such securities shall not be considered a breach of the
covenants set forth in this Paragraph 7.
(d) Further Covenant. Until the date which is two (2) years
after the date of the termination of Corritori's employment hereunder for any
reason, Corritori will not, directly or indirectly, take any of the following
actions, and, to the extent Corritori owns, manages, operates, controls, is
employed by or participates in the ownership, management, operation or control
of, or is connected in any manner with, any business of the type and character
engaged in and competitive with that conducted by the Company or any of its
subsidiaries or affiliates during the period of Corritori's employment,
Corritori will use his best efforts to ensure that such business does not take
any of the following actions:
(i) persuade or attempt to persuade any customer of the
Company to cease doing business with the Company or any of its subsidiaries or
affiliates, or to reduce the amount of business it does with the Company or any
of its subsidiaries or affiliates;
(ii) solicit for himself or any entity the business of a
customer of the Company or any of its subsidiaries or affiliates, or solicit any
business which was a customer of the Company or any of its subsidiaries or
affiliates within six months prior to the termination of Corritori's employment;
and
(iii) persuade, attempt to persuade or hire any employee of
the Company or any of its subsidiaries or affiliates or any individual who was
its employee of the
<PAGE> 13
Company or any of its subsidiaries or affiliates during the two (2) years prior
to Corritori's termination of employment, to leave the employ of the Company or
any of its subsidiaries.
8. Intellectual Property. Corritori hereby agrees that any and all
improvements, inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information made,
developed or created by Corritori (whether at the request or suggestion of the
Company or otherwise, whether alone or in conjunction with others, and whether
during regular working hours of work or otherwise) during the period of his
employment with the Company, which may be directly or indirectly useful in, or
relate to, the business of or tests being carried out by the Company or any of
its subsidiaries or affiliates, shall be promptly and fully disclosed by
Corritori to the Board of Directors and shall be the Company's exclusive
property as against Corritori, and Corritori shall promptly deliver to the Board
of Directors of the Company all papers, drawings, models, data and other
material relating to any invention made, developed or created by him as
aforesaid.
Corritori shall, upon the Company's request and without any payment
therefor, execute any documents necessary or advisable in the opinion of the
Company's counsel to direct issuance of patents or copyrights of the Company
with respect to such inventions as are to be in the Company's exclusive property
as against Corritori under this Paragraph 8 or to vest in the Company title to
such inventions as against Corritori, the expense of securing any such patent or
copyright, to be borne by the Company.
9. Breach by Employee. Both parties recognize that the services to be
rendered under this Agreement by Corritori are special, unique and extraordinary
in character, and that in the event of a breach by Corritori of the terms and
conditions of the Agreement to be
<PAGE> 14
performed by him, then the Company shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to obtain damages for any breach of this Agreement,
or to enforce the specific performance thereof by Corritori. Without limiting
the generality of the foregoing, the parties acknowledge that a breach by
Corritori of his obligations under Paragraph 7 or 8 would cause the Company
irreparable harm, that no adequate remedy at law would be available in respect
thereof and that therefore the Company would be entitled to injunctive relief
with respect thereto.
10. Miscellaneous.
(a) Successors; Binding Agreement. This Agreement and the
obligations of the Company hereunder and all rights of Corritori hereunder shall
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, provided, however, that the duties of
Corritori hereunder are personal to Corritori and may not be delegated or
assigned by him.
(b) Notice. All notices of termination and other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand or mailed by United States registered
mail, return receipt requested, addressed as follows:
If to the Company:
Florsheim Group Inc.
200 North LaSalle
Chicago, Illinois 60601
Attention: Richard Anglin
<PAGE> 15
If to Corritori:
Mr. Peter Corritori
6 Sunset Lane
Harrison, New York 10528
or to such other address as either party may designate by notice to the other,
which notice shall be deemed to have been given upon receipt.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflict of law rules thereof.
(d) Waivers. The waiver of either party hereto of any right
hereunder or of any failure to perform or breach by the other party hereto shall
not be deemed a waiver of any other right hereunder or of any other failure or
breach by the other party hereto, whether of the same or a similar nature or
otherwise. No waiver shall be deemed to have occurred unless set forth in
writing executed by or on behalf of the waiving party. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as to
any act other than that specifically waived.
(e) Validity. The invalidity or enforceability of any provision
of this Agreement shall not affect shall otherwise remain in full force and
effect. Moreover, if any one or more of the provisions contained in this
Agreement is held to be excessively broad as to duration, scope or
<PAGE> 16
activity, such provisions shall be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
(g) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties in respect of the subject matter
contained herein, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of either party in respect
of said subject matter.
(h) Headings Descriptive. The headings of the several paragraphs
of this Agreement are inserted for convenience only and shall not in any way
affect the meaning or construction of any of this Agreement.
IN WITNESS WHEREOF, the Company and Corritori have executed this
Agreement as of the date first written above.
PETER CORRITORI FLORSHEIM GROUP INC.
Peter P. Corritori Jr. By: Josh Harris
- ---------------------- ---------------------------
Name: Josh Harris
Title: Director
<PAGE> 1
EXHIBIT 21
Florsheim Group Inc.
Subsidiaries of the Company
---------------------------
The Florsheim Shoe Store Company - Northeast, a Delaware corporation
The Florsheim Shoe Store Company - West, a Delaware corporation
L.J. O'Neill Shoe Co., a Missouri corporation
Florsheim Occupational Footwear, Inc., a Missouri corporation
Florsheim Australia Limited, an Australian corporation
Florsheim Canada, Inc., a Canadian corporation
Florsheim Europe S.R.L., an Italian corporation
Florsheim Pacific Limited, a Hong Kong corporation
Florsheim S.A. de C.V., a Mexican corporation
Florsheim B.V., a Netherlands corporation
Florsheim Limited, a U.K. corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF KPMG LLP
The Board of Directors
Florsheim Group Inc.:
We consent to the use of our report dated March 21, 2000, on the consolidated
balance sheets of Florsheim Group Inc. and subsidiaries as of January 2, 1999
and January 1, 2000, the related consolidated statements of operations and
comprehensive income, cash flows, and shareholders' equity for the years ended
January 3, 1998, January 2, 1999, and January 1, 2000 and related financial
statement schedule, which is included in the January 1, 2000 annual report on
Form 10-K of Florsheim Group Inc.
KPMG LLP
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JAN-01-2000
<EXCHANGE-RATE> 1
<CASH> 5,675
<SECURITIES> 0
<RECEIVABLES> 30,163
<ALLOWANCES> 1,475
<INVENTORY> 70,964
<CURRENT-ASSETS> 117,884
<PP&E> 60,423
<DEPRECIATION> 27,898
<TOTAL-ASSETS> 197,352
<CURRENT-LIABILITIES> 48,609
<BONDS> 83,612
0
0
<COMMON> 8,484
<OTHER-SE> 36,164
<TOTAL-LIABILITY-AND-EQUITY> 197,352
<SALES> 245,726
<TOTAL-REVENUES> 245,726
<CGS> 139,550
<TOTAL-COSTS> 106,660
<OTHER-EXPENSES> 105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,423
<INCOME-PRETAX> (11,012)
<INCOME-TAX> (3,394)
<INCOME-CONTINUING> (7,618)
<DISCONTINUED> 0
<EXTRAORDINARY> (750)
<CHANGES> 0
<NET-INCOME> (8,368)
<EPS-BASIC> (0.99)
<EPS-DILUTED> (0.99)
</TABLE>
